Fed hikes rates for the first time in three years

The US Federal Reserve unanimously voted to raise its key benchmark interest rate for the first time since 2023, hiking it by a quarter point to 3.75-4% as it looks to rein in inflation, according to a statement. This is Fed Chair Kevin Warsh’s first hike since taking over the central bank in May, and it sets up a test for his relationship with US President Donald Trump, who has spent months publicly pushing the Fed to cut.

The move was widely expected, with a Financial Times poll showing 50 out of 51 economists chose a raise as the best option — most favoring the 25 bps move, though 14% argued the war’s escalation warranted a bigger hike of 50 bps.

The White House wasted no time reacting. On Fox News, just after the announcement of the rate hike, spokesman Kush Desai called it “a rather unfortunate decision by the Federal Reserve” that was “not, from the administration’s point of view, backed by a particularly compelling economic case.”

The rationale: New global tariffs, energy shocks from the regional war, and heavy AI-related capex have kept price pressures elevated: headline CPI rose 3.4% year-on-year in August, and the Fed’s own updated forecasts now put headline PCE inflation at 3.7% for the year, with core PCE at 3.4% — both nowhere near the 2% target. The median FOMC dot doesn’t see 2% being reached until 2029. Warsh said inflation has been “too high ... for too long” at his post-decision press conference.

Key context: Earlier this week, 10-year US Treasury yields surged past 5% to reach levels not seen since the 2008 financial crash, underscoring the friction between heavy global sovereign debt and surprisingly durable economic expansion. Leaving rates unchanged when the market heavily anticipated a move would have pushed bond yields even higher, former Pimco co-chief exec Mohamed El Erian said.

REMEMBER- The last meeting saw the Fed hold its benchmark rate at 3.5-3.75% for the fifth time in a row, with three regional Fed presidents voting in favor of a 25 bps raise. At the time, analysts had priced in a hike for September after the regional war slashed predictions of a cut sometime this year.

What’s next: The dot plot suggests the Fed isn’t done this year — 16 out of 18 officials (Warsh again declined to submit a projection) penciled in at least one more hike in 2026, with four of them seeing two more, while two expect the Fed to stop here. That tracks with a pre-meeting UBS note expecting a second 25 bps hike in December — though the bank flagged that a cooling in six-month annualized inflation toward 2.5% by year-end could still prompt a holdoff.

MARKETS THIS MORNING-

Asian stocks edged higher in early trading, as Japan’s Nikkei and South Korea’s Kospi rose around 0.3%. Meanwhile, US equities fell across the board after the Fed’s decision to hike rates.

THE CLOSING BELL-

The EGX30 fell 0.2% at yesterday’s close on turnover of EGP 10 bn (14.2% below the 90-day average). Local investors were the sole net buyers. The index is up 31.1% YTD.

In the green: Mopco (+4.7%), Heliopolis Housing (+2.9%), and AMOC (+2.8%).

In the red: Ibnsina Pharma (-3.0%), Eastern Company (-2.0%), and E-finance (-1.1%).