The Federal Reserve, the central bank of the United States, raised its benchmark interest rate by a quarter percentage point on Wednesday (16), to a range of 3.75% to 4% a year. The decision was unanimous, by 12 votes to 0, according to Folha de S.Paulo, and it is the first increase since July 2023. The move ends a run of five straight meetings with rates frozen between 3.5% and 3.75% and had been fully expected by financial markets.
In its statement, the Federal Open Market Committee (Fomc), the Fed body that sets rates, judged that the US economy keeps expanding at a solid pace and that household spending remains resilient despite uncertainty from geopolitical events, including the oil price surge amid tensions in the Middle East. The reading spans both sides of the Fed's mandate, containing inflation and sustaining employment: consumer prices rose 3.4% in the 12 months through August, and the labor market surprised with 162,000 nonfarm jobs created, nearly three times the 55,000 expected by analysts, with unemployment steady at 4.1%, according to Labor Department data cited by g1.
For Brazil, the effect arrives through the exchange rate and the cost of money. Higher US rates make Treasury bonds more attractive and strengthen the dollar, which tends to shrink foreign investment flows to emerging economies and put pressure on Brazil's currency, the real. The wide interest rate gap also gives Brazil's central bank reasons to keep its benchmark rate, the Selic, elevated for longer. Even so, analysts expected the bank's monetary policy committee, the Copom, to cut the Selic by a quarter point, from 14% to 13.75%, at a meeting that ended the same Wednesday, which would leave the gap between the two countries at 9.75 percentage points.
Pressure from the White House
The decision lands in an unusual political setting for the American central bank. President Donald Trump, who has demanded lower rates since the start of his second term, said on Sunday (13), while attending the Irish Open golf tournament, that "the US should pay the lowest interest rate in the world". It was the third Fomc meeting under Kevin Warsh, Trump's pick to succeed Jerome Powell after months of open friction, who took office on May 22. According to InfoMoney, the hike settles the question of whether Warsh would delay tighter policy out of deference to the president who appointed him, and the statement dropped an earlier reference that blamed inflation on supply shocks in the energy sector, a sign that officials see price pressures as too broad to be comfortable.
The calendar tightens the game. The increase was announced less than two months before the midterm elections that will decide whether Trump's Republicans keep control of Congress. Gasoline costs about a third more than a year ago, and the average 30-year fixed mortgage rate is approaching 7%. The Fed's new projections raised its 2026 inflation forecast, measured by the personal consumption expenditures index, from 3.6% to 3.7%, and inflation is now expected to return to the 2% target only in 2029, a year later than previously projected.
More tightening through 2029
Heading into the end of the year, the direction is more tightening. Among the 18 officials who published projections, 16 expect at least one more quarter-point increase by December, which would take the rate to a range of 4% to 4.25%, a level held through the end of 2027. Warsh pledged to bring inflation back to 2% quickly and clearly, raising rates as needed, and offered no forward guidance, in line with his communication style. Market reaction will hinge on how the Fed chair explains, in a press conference held at 3:30 pm Brasília time, what could justify further increases.