The United States Federal Reserve has said it will raise interest rates by a quarter of a percentage point as inflation, driven by soaring fuel prices amid the US-Iran war, continues to weigh on the economy.<\/p>\n
The Fed, which is the central bank of the US, said on Wednesday that it will hike interest rates by 25 basis points to 3.75 percent to 4 percent.<\/p>\n
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It is the first hike in more than three years and comes just weeks before the US midterm elections, despite repeated demands from US President Donald Trump to lower rates.<\/p>\n
\u201cEconomic activity is expanding at a solid pace. While uncertainty remains elevated owing, in part, to geopolitical developments, domestic spending has been resilient,\u201d the Fed said in a statement on Wednesday.<\/p>\n
\u201cInflation remains elevated. Today\u2019s policy action will support a timelier return to the Committee\u2019s 2 percent goal. The Committee will deliver price stability.\u201d<\/p>\n
After Wednesday\u2019s hike, Fed officials expect one more rate increase this year, according to their quarterly projections, and expect rates to remain unchanged through next year.<\/p>\n
CME FedWatch, which tracks the likelihood of monetary policy decisions, forecast a 92.3 percent chance of the Fed increasing rates to 3.75 to 4 percent. A week ago, that forecast was a 40 percent chance of a quarter-percent rate increase.<\/p>\n
Stress on economy<\/p>\n
But in the days since, a slew of data shifted those expectations.<\/p>\n
For one, consumer prices jumped in August<\/a> by 0.4 percent, the highest increase in four months. Trump\u2019s tariffs and capital spending to feed the artificial intelligence boom have also pressed prices.<\/p>\n On an annual basis, prices rose 3.4 percent, matching the increase recorded in July, while the job market remains healthy<\/a>.<\/p>\n Since then, benchmark crude oil prices have continued to soar as strikes in the US-Israel war on Iran have intensified. Brent crude hovered near $109 per barrel on Tuesday.<\/p>\n The average price for a gallon of petrol is $4.36 ($1.15 per litre), up 14 cents in the past week, and up from $4.06 ($1.07 per litre) last month, according to the American Automobile Association (AAA), which tracks daily petrol prices.<\/p>\n Diesel, on the other hand, was at $6.31 ($1.67 per litre), the highest recorded average and roughly double from a year ago. That, in turn, is expected to further stoke prices as diesel is used in trucks to haul everything from fruits and vegetables to steel and cement.<\/p>\n