Washington: US Federal Reserve Chair Kevin Warsh announced on Wednesday that the central bank has unanimously decided to raise the federal funds rate by 25 basis points, following a period of steady rates in July. The decision was influenced by a strengthening economy, persistent inflation, and heightened geopolitical risks.

According to Anadolu Agency, Warsh highlighted that recent economic data, especially labor market indicators, suggested an improvement in the US economy. Despite the positive economic signals, inflation trends over the summer did not show significant progress towards the Fed's 2% target. Additionally, the geopolitical situation had evolved, which factored into the decision to increase rates without explicitly mentioning the US-Iran conflict.

The Federal Open Market Committee (FOMC) raised the federal funds rate to a range of 3.75% to 4%, marking a shift from the previous decision to hold rates steady. Warsh emphasized that the low unemployment rate of 4.1%, alongside rising job openings and average weekly hours, enabled the Fed to focus on price stability. He pointed out that inflation remains high, with the latest data suggesting annual headline personal consumption expenditures inflation around 3.6% in August, and core PCE inflation approximately 3.2%.

Warsh noted that financial conditions prior to the meeting were not considered restrictive, dismissing the notion that the rate hike was influenced by financial markets' expectations. He clarified that the decision was based on the Fed's assessment of the economy's strength and employment trajectory. Although the Fed has not indicated whether this move will lead to a series of increases, Warsh stated he is not committed to providing forward guidance.

Projections released post-meeting showed expectations for real GDP growth at 2.3% this year and 2.4% next year, with headline PCE inflation projected to ease to 3.2% next year. The unemployment rate is anticipated to remain at around 4.1%. The federal funds rate is expected to reach 4.1% by the end of this year and next, according to median policymaker forecasts.

Warsh attributed rising long-term Treasury yields to strong economic activity, increased capital competition, and geopolitical tensions. The Fed has also established an artificial intelligence task force, which will report on the technology's economic and monetary policy implications by year's end.