The Federal Reserve on Wednesday raised its benchmark lending rate by 25 basis points, marking its first hike in just over three years as inflation remained elevated.
The central bank's Federal Open Market Committee lifted the federal funds rate to a range of 3.75% to 4%, the first time it has tightened monetary policy since July 2023.
The decision was unanimous, the FOMC said in a statement.
"Inflation remains elevated," the committee said. "Today's policy action will support a timelier return to the committee's 2% (inflation) goal."
Most economists, including those at Wall Street giants Goldman Sachs and Morgan Stanley, expected the Fed to raise interest rates. Goldman, however, didn't see a strong economic case for policy tightening amid an improvement in core personal consumption expenditure inflation.
The FOMC said it remains committed to "deliver price stability."
Crude oil prices rallied past $100 a barrel this month amid intensifying hostilities in the Middle East, while diesel in the US has hit record highs. Official data showed last week that US consumer inflation and producer prices hit three-month highs in August as energy costs rose.
"Economic activity is expanding at a solid pace," the FOMC said. "While uncertainty remains elevated owing, in part, to geopolitical developments, domestic spending has been resilient. Productivity growth is strong, and capital investment is robust."
Employment gains have kept pace with the workforce, while the jobless rate remains little changed, the FOMC said.
Late last month, Fed Chair Kevin Warsh said that the central bank's primary focus should be on prices, given that the US was doing well on the employment front. Data earlier this month showed the American economy added almost triple the jobs expected by Wall Street in August.
