Fed Raises Rates as Economy Strengthens, Inflation Stays High

(MENAFN) US Federal Reserve Chair Kevin Warsh said Wednesday that stronger economic conditions, persistent inflation and increased geopolitical uncertainty contributed to the central bank’s decision to raise interest rates after leaving them unchanged at its previous meeting.

Explaining what had shifted during the seven weeks between the two policy meetings, Warsh pointed to recent economic data, particularly developments in the labor market, which indicated that US economic activity had gained strength.

At the same time, inflation readings recorded over the summer did not show enough progress toward the Federal Reserve’s 2% target. Warsh also cited changes in the geopolitical environment, without specifically mentioning the US-Iran war.

“All three of those things lent themselves to a firm, unanimous decision today,” said Warsh.

The Federal Open Market Committee unanimously increased the federal funds rate by 25 basis points on Wednesday, bringing the target range to between 3.75% and 4%. The move followed the committee’s decision to keep rates unchanged in July.

Warsh said the unemployment rate was still relatively low at 4.1%, while job vacancies and average weekly working hours had risen. He said these labor-market conditions allowed policymakers to place greater attention on maintaining price stability as part of the Fed’s dual mandate.

“The plain fact is that inflation is too high, and has been for too long,” he said. “This summer’s inflation readings do not tell me that underlying trends have meaningfully improved.”

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