Saudi Press

Saudi Arabia and the world
Thursday, Oct 02, 2025

US Federal Reserve raises interest rates for first time since 2018

US Federal Reserve raises interest rates for first time since 2018

Fed raises rates by a quarter percentage point from near zero as central bank struggles with inflation, the war in Ukraine and Covid
The Federal Reserve has raised interest rates for the first time since 2018, as the central bank struggles with soaring US inflation, the impact of the war in Ukraine and the coronavirus crisis.

The Fed raised rates by a quarter percentage point from near zero, in what is expected to be the first in a series of raises in the coming months.

In a statement, the Fed said economic indicators and employment figures had “continued to strengthen”, but noted that inflation remained elevated and the invasion of Ukraine was not only “causing tremendous human and economic hardship” but was “likely to create additional upward pressure on inflation and weigh on economic activity” in the US.

The Fed has a dual mandate – to maximize employment and keep prices under control. The job market and the wider economy have made an impressive recovery from the lows of the pandemic, thanks in part to Fed rate cuts and a massive stimulus program, but prices have increased by 7.9% in the year through February – the highest rate of inflation in 40 years.

Supply chain issues have led to sharp increases in a variety of areas including used cars, food and utilities that are causing particular hardship for lower-income Americans.

The Fed initially dismissed rising prices as “transitory”, but has since acknowledged high inflation is likely to be around for some time. Supply problems that appeared to be normalizing earlier this year are also now feeling the impact of the war in Ukraine and face further setbacks as China imposes new lockdowns to curb new coronavirus outbreaks.

At a press conference, Fed chair Jerome Powell said the bank was “acutely aware” that it must tackle inflation. “I’m old enough to remember what very high inflation was like,” he said. “We’re strongly committed as a committee to not allowing this higher inflation to become entrenched.”

The Fed is projecting six more rate rises this year. One Fed committee member, the St Louis Fed president James Bullard, pushed for a larger half-percentage-point increase this month. “If we conclude it will be appropriate to raise interest rates more quickly, then we’ll do so,” said Powell.

Raising rates too quickly threatens to push the US into recession. This week, CNBC’s Fed Survey – which gauges the opinions of fund managers, strategists and economists – put the probability of recession in the US at 33% in the next 12 months, up 10 percentage points from the 1 February survey. The latest survey put the chance of a recession in Europe at 50%.

With inflation running at close to four times the Fed’s target rate of 2%, Powell has made clear that the central bank will raise rates in an attempt to curb rising prices. But some economists question how much impact the Fed can have on such a complex issue.

JW Mason, associate professor of economics at John Jay College, said a quarter-point rate rise was unlikely to have much impact on inflation or the wider economy. “It is a strange feature of the way we think and talk about economics today that we have given this wildly outsized importance to this one policy tool used by this one part of government,” he said.

Mason said he expected inflation would ease without the Fed’s intervention over the next year – albeit “less than we hoped it would”. He pointed out that car prices – until recently the largest source of inflation – were already falling. While he said a series of small rate rises were not likely to have a major impact overall “a sufficiently large rise in interest rates will have a substantial negative effect on real economic activity”.

Mason said other branches of government were better able to deal with price issues in the broader economy, such as soaring rents and home prices or gas and utility bills, and that tools such as price caps or stimulus cheques could be used to alleviate hardship.

Powell said he expected US inflation to ease later this year, with the Fed predicting it will end the year at 4.1%. But he reiterated that the war in Ukraine was likely to lead to supply chain disruptions and higher prices. “No matter what happens, this is a committee that is determined to use its tools to make sure that higher inflation does not become entrenched. And so we are determined on that front and will deal with what comes,” said Powell.
Newsletter

Related Articles

Saudi Press
0:00
0:00
Close
Altman Says GPT-5 Already Outpaces Him, Warns AI Could Automate 40% of Work
Trump Organization Teams with Saudi Developer on $1 Billion Trump Plaza in Jeddah
Electronic Arts to Be Taken Private in Historic $55 Billion Buyout
Colombian President Petro Vows to Mobilize Volunteers for Gaza and Joins List of Fighters
Nvidia and Abu Dhabi’s TII Launch First AI-&-Robotics Lab in the Middle East
UK, Canada, and Australia Officially Recognise Palestine in Historic Shift
New Eye Drops Show Promise in Replacing Reading Glasses for Presbyopia
Dubai Property Boom Shows Strain as Flippers Get Buyer’s Remorse
Top AI Researchers Are Heading Back to China as U.S. Struggles to Keep Pace
JWST Data Brings TRAPPIST-1e Closer to Earth-Like Habitability
UAE-US Stargate Project Poised to Make Abu Dhabi a Global AI Powerhouse
Trump and Starmer Clash Over UK Recognition of Palestinian State Amid State Visit
Saudi Arabia cracks down on music ‘lounges’ after conservative backlash
Saudi Arabia Signs ‘Strategic Mutual Defence’ Pact with Pakistan, Marking First Arab State to Gain Indirect Access to Nuclear Strike Capabilities in the Region
Sam Altman sells the 'Wedding Estate' in Hawaii for 49 million dollars
Turkish car manufacturer Togg Enters German Market with 5-Star Electric Sedan and SUV to Challenge European EV Brands
World’s Longest Direct Flight China Eastern to Launch 29-Hour Shanghai–Buenos Aires Direct Flight via Auckland in December
New OpenAI Study Finds Majority of ChatGPT Use Is Personal, Not Professional
Kuwait opens bidding for construction of three cities to ease housing crunch.
This Week in AI: Meta’s Superintelligence Push, xAI’s Ten Billion-Dollar Raise, Genesis AI’s Robotics Ambitions, Microsoft Restructuring, Amazon’s Million-Robot Milestone, and Google’s AlphaGenome Update
Indian Student Engineers Propose “Project REBIRTH” to Protect Aircraft from Crashes Using AI, Airbags and Smart Materials
Could AI Nursing Robots Help Healthcare Staffing Shortages?
Turkish authorities seize leading broadcaster amid fraud and tax investigation
Qatari prime minister says Netanyahu ‘killed any hope’ for Israeli hostages
Apple Introduces Ultra-Thin iPhone Air, Enhanced 17 Series and New Health-Focused Wearables
Big Oil Slashes Jobs and Investments Amid Prolonged Low Crude Prices
Social Media Access Curtailed in Turkey After CHP Calls for Rallies Following Police Blockade of Istanbul Headquarters
Did the Houthis disrupt the internet in the Middle East? Submarine cables cut in the Red Sea
Gold Could Reach Nearly $5,000 if Fed Independence Is Undermined, Goldman Sachs Warns
Uruguay, Colombia and Paraguay Secure Places at 2026 World Cup
Trump Administration Advances Plans to Rebrand Pentagon as Department of War Instead of the Fake Term Department of Defense
Tether Expands into Gold Sector with Profit-Driven Diversification
Trump’s New War – and the ‘Drug Tyrant’ Fearing Invasion: ‘1,200 Missiles Aimed at Us’
At the Parade in China: Laser Weapons, 'Eagle Strike,' and a Missile Capable of 'Striking Anywhere in the World'
Information Warfare in the Age of AI: How Language Models Become Targets and Tools
Israeli Airstrike in Yemen Kills Houthi Prime Minister
After the Shock of Defeat, Iranians Yearn for Change
YouTube Altered Content by Artificial Intelligence – Without Permission
Iran Faces Escalating Water Crisis as Protests Spread
More Than Half a Million Evacuated as Typhoon Kajiki Heads for Vietnam
HSBC Switzerland Ends Relationships with Over 1,000 Clients from Saudi Arabia, Lebanon, Qatar, and Egypt
Sharia Law Made Legally Binding in Austria Despite Warnings Over 'Incompatible' Values
Dogfights in the Skies: Airbus on Track to Overtake Boeing and Claim Aviation Supremacy
Tim Cook Promises an AI Revolution at Apple: "One of the Most Significant Technologies of Our Generation"
Are AI Data Centres the Infrastructure of the Future or the Next Crisis?
Miles Worth Billions: How Airlines Generate Huge Profits
Zelenskyy Returns to White House Flanked by European Allies as Trump Pressures Land-Swap Deal with Putin
Beijing is moving into gold and other assets, diversifying away from the dollar
Cristiano Ronaldo Makes Surprise Stop at New Hong Kong Museum
Zelenskyy to Visit Washington after Trump–Putin Summit Yields No Agreement
×