Fed announces first interest rate hike in over 3 years as inflation persists

The U.S. Federal Reserve on Wednesday raised its target federal funds rate by 25 basis points to a range of 3.75 percent to 4 percent, marking its first rate hike since July 2023 as it battles stubborn inflation.

In its policy statement, the Fed said persistent inflationary pressures, compounded by geopolitical conflicts driving up global energy prices, have left current monetary policy insufficient to bring inflation back down to its 2 percent target.

The decision came during the Federal Open Market Committee's two-day meeting, which concluded Wednesday, where participants submitted projections for real GDP growth, unemployment and inflation for 2026 through 2029 and over the longer term.

The Fed's projections showed a committee divided on how much further to tighten. Of the 18 officials, 12 expected another 25 basis-point hike before year's end, four anticipated two more increases, and two foresaw no further moves.

The Fed also revised up its full-year economic growth forecast and its year-end inflation expectations.

U.S. stocks ended lower on Wednesday, with all three major indexes closing in the red as investors digested the Federal Reserve's decision to raise interest rates for the first time in three years. The Dow Jones Industrial Average fell by 631.21 points, or 1.21 percent, to 51,461.9. The S and P 500 sank 33.92 points, or 0.45 percent, to 7,551.81. The Nasdaq Composite Index shed 3.15 points, or 0.01 percent, to 25,978.43.

Eight of the 11 primary S and P 500 sectors ended in the red, with energy and financials leading the laggards by dropping 2.97 percent and 1.63 percent, respectively. Meanwhile, technology and health led the gainers by adding 0.1 percent and 0.04 percent, respectively.

The Fed on Wednesday raised its target federal funds rate by 25 basis points to a range of 3.75 percent to 4 percent, marking its first rate hike since July 2023 as it battles stubborn inflation.