Fed hikes rates for first time in three years on elevated inflation

The US Federal Reserve on Wednesday raised its benchmark interest rate by 25 basis points, delivering the central bank's first hike in more than three years as inflation remained stubbornly above the 2% target. The Federal Open Market Committee approved the decision unanimously in a 12-0 vote, lifting the target range for the federal funds rate to 3.75%-4% in support of the central bank's dual mandate of maximum employment and price stability.

Committee vows to 'deliver price stability'

"Inflation remains elevated," the Fed said in its statement, adding that the policy action would support a "timelier return" to its 2% inflation target. "The Committee will deliver price stability," it added, according to the official release from Washington.

August data shows persistent price pressures

The latest official data showed US consumer inflation remained well above the central bank's target in August. The Consumer Price Index rose 0.4% month on month, accelerating from a 0.1% increase in July, with annual inflation standing at 3.4% unchanged from the previous month, according to the Bureau of Labor Statistics. Core inflation, which excludes volatile food and energy prices, eased slightly to 2.4% annually from 2.5%, despite accelerating to 0.3% on a monthly basis.

Solid expansion continues amid geopolitical risks

The Fed noted that economic activity continued to expand at a solid pace, while domestic spending remained resilient despite uncertainty that remained elevated partly because of geopolitical developments. Energy prices jumped 16.3% from a year earlier, including a 27.4% surge in gasoline prices, while productivity growth was strong and capital investment remained robust. Job gains had kept pace with growth in the workforce and the unemployment rate had changed little, according to the statement, which added that the FOMC would continue maintaining ample reserves in the banking system.