The US Federal Reserve raised its benchmark interest rate by 0.25 percentage points on Wednesday, marking its first rate hike since 2023 as the Iran war drives up global energy prices and fuels inflation.

Axar.az reports, citing CBS News, that the increase brings the federal funds target range to 3.75%-4%, its highest level since December 2025. The Fed's rate-setting committee also signaled that it expects to raise rates again later this year.

The decision was unanimous.

Fed Chair Kevin Warsh said the Federal Open Market Committee expects to keep interest rates unchanged throughout 2027, indicating that the latest increase does not mark the start of another major tightening cycle.

The rate hike comes as US inflation remains above the Fed's 2% target. Consumer prices rose 3.4% year-on-year in August, while higher energy costs linked to the conflict in the Middle East have added to inflationary pressures.

Higher interest rates are expected to increase borrowing costs for consumers and businesses, including through credit cards, auto loans, personal loans and mortgages, while potentially slowing spending and investment.