Inflation Remains High, the Fed Raises Interest Rates Again by 25 bps

The Federal Open Market Committee (FOMC) of the United States Federal Reserve (The Fed), meeting on September 25-26, 2018, local time, decided to raise the Fed Funds rate by 25 basis points to 2.25%. This is the third rate hike this year and the eighth since the end of December 2015. The central bank's move to raise the benchmark interest rate aims to control inflation.

Improved economic conditions in the United States, evidenced by 4.2% economic growth in the second quarter of 2018, fueled the rise in inflation. For context, US inflation in August reached 2.7%; this high inflation rate is one of the reasons The Fed raised its benchmark interest rate again, as its inflation target for the year is 2%.

President Donald Trump's tax cuts and protectionist economic policies have increased consumer purchasing power and contributed to high inflation. The Fed may raise the benchmark interest rate one more time by the end of the year to bring inflation closer to its 2% target. The US central bank also has the potential to raise interest rates three more times by the end of 2019.