The Federal Reserve raised its benchmark interest rate by a quarter percentage point Wednesday, lifting the federal-funds target range to 3.75% to 4% in its first rate increase in three years, The Wall Street Journal reports.
The unanimous decision marks a reversal from the rate cuts made last year and reflects the Fed’s continued concerns about inflation, which has made little progress toward the central bank’s 2% target since mid-2025.
Rising energy and commodity prices, along with an investment surge tied to the artificial intelligence boom, have complicated the Fed’s efforts to bring inflation down. The higher benchmark rate will affect short-term borrowing costs for consumers and businesses, while longer-term Treasury yields have also climbed, pushing the 30-year mortgage rate to nearly 7% last week.
The Fed’s latest projections point to one more rate increase this year, with 16 of 18 officials penciling in at least one additional hike that would push the benchmark rate to just above 4%. The outlook represents a significant shift from last year, when the central bank cut rates three times as insurance against a potential labor-market slowdown.
The unemployment rate has since settled at 4.1%, while hiring has steadied. For businesses, higher short-term rates and elevated long-term borrowing costs could raise financing expenses and influence investment decisions as companies navigate persistent inflation, higher energy costs and continued AI-driven demand heading into 2027.
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