[Update] Fed Raises Benchmark Interest Rate by 0.25 Percentage Points... Unanimous Vote by All 12 Members

Target Rate Raised to 3.75–4.00%
"Inflation Remains High"

The U.S. central bank, the Federal Reserve (Fed), has raised its benchmark interest rate by 0.25 percentage points. The decision was made because, despite geopolitical uncertainties, consumer spending and corporate investment in the United States remain robust, and inflation is still at a high level.

Kevin Wash, Federal Reserve (Fed) Chair. Photo by AP Yonhap News.

On September 16 (local time), after concluding the regular meeting of the Federal Open Market Committee (FOMC), the Fed announced that it had decided to raise the target range for the federal funds rate, its key benchmark, by 0.25 percentage points to 3.75–4.00 percent per annum.

This rate hike was unanimously approved by all 12 FOMC members. In its statement, the Fed said, “Economic activity has been expanding at a solid pace,” adding, “Despite the high level of uncertainty due to factors such as the geopolitical situation, spending within the United States remains resilient.”

The Fed also gave a positive assessment of productivity and corporate investment. It stated, “The trend of productivity growth is strong and capital investment remains robust,” explaining, “Job growth is keeping pace with the increase in the labor force, and the unemployment rate has seen little change.”

On the other hand, the Fed raised its level of caution regarding inflation. The central bank stated, “Inflation remains at a high level,” and said, “This policy decision will help bring the inflation rate more quickly back toward the Committee’s target of 2 percent.” The Fed further emphasized, “The Committee will achieve price stability.”

This can be interpreted as the Fed prioritizing monetary policy to contain high inflation, based on its judgment that the U.S. economy’s growth and labor market are strong enough to withstand the rate increase.

The Fed also decided to maintain its current operating structure, which ensures sufficient reserves in the financial system. Accordingly, starting on September 17, the interest rate applied to reserve balances will be raised by 0.25 percentage points to 3.90 percent per annum.

The Fed stated that, to maintain a sufficient level of reserves, it may purchase U.S. Treasury securities with maturities of three years or less if necessary. All principal payments from its holdings of U.S. Treasuries will be reinvested entirely, and principal payments received from agency securities will be reinvested in short-term Treasuries.

Market attention is now likely to shift to whether there will be further interest rate increases moving forward. This statement did not include any explicit guidance regarding the policy direction for the next meeting. It appears that future decisions will be influenced by upcoming data on prices and employment, as well as the geopolitical situation.

This content was produced with the assistance of AI translation services.