Federal Reserve raises interest rates for the first time since 2023

The Federal Reserve raised interest rates for the first time since 2023 on Wednesday, reversing course as the Iran war drives up global energy prices and fuels inflation.

The Fed raised the federal funds rate by 0.25 percentage points, bringing its target range to between 3.75% and 4% — its highest level since December 2025. The benchmark rate influences borrowing costs across the U.S. economy, including for credit cards, auto loans and personal loans. 

The hike marks an about-face from the Fed's stance at the start of the year, when inflation was cooling, and as many economists expected the central bank to lower interest rates throughout 2026. Instead, monetary policymakers are brandishing their most potent weapon to curb prices. The Consumer Price Index rose at an annual rate of 3.4% in August, far above the Fed's 2% annual target. 

"Inflation remains elevated. Today's policy action will support a timelier return to the Committee's 2 percent goal," the Fed said in its Wednesday statement.

Fed Chairman Kevin Warsh will answer questions about the central bank's latest policy statement in a news conference at 2:30 p.m. ET. 

President Trump has repeatedly called on the Fed to lower borrowing costs. But escalating conflict in the Middle East has disrupted crude oil production and supplies, pushing up fuel prices in the U.S. and driving up costs across the broader economy. 

The average price of diesel reached a record $6.31 per gallon on Wednesday, a 71% jump from a year ago, according to AAA. Gasoline now averages $4.37 a gallon, up from $4.06 a month ago and $2.98 just before the Iran war started in February. 

Higher interest rates can tamp down inflation because consumers pare spending and businesses reduce investment. That cools economic growth and tempers price increases as demand slows.