Sticky inflation, some of which is underpinned by rising energy prices, helped prompt the central bank to act. 

We carry these reactions from wealth managers:

UBS Global Wealth Management
Updated projections indicate that most policymakers expect at least one further increase this year. This backdrop may keep US real yields and the dollar elevated, increasing the opportunity cost of holding non-yielding gold and creating further near-term volatility for the yellow metal.

Gold exchange-traded funds recorded solid inflows in August amid concerns about Fed independence and rising debt levels. In the near term, however, some of these holdings could see outflows following the meeting’s perceived hawkish hike.

However, the rate decision and the prospect of further hikes are widely anticipated by market participants, and tighter policy does not invalidate gold’s longer-term investment case, in the bank's view. Rising global debt levels, its expectation of a weaker US dollar over time, and the likelihood of Fed rate cuts next year should support investor demand for gold. Together with elevated geopolitical uncertainty, these factors should provide a favourable medium-term backdrop for the yellow metal.

Brad Conger, chief investment officer at Hirtle & Co
Today’s FOMC hike could mark the moment when the FOMC regained a measure of spine.  There were many arguments for standing still. But for once, the committee sided with main street. Inflation is a pervasive concern, and its uncertainty is impeding decision-making among all businesses.

One swallow doesn’t make a Powell era.

Salman Ahmed, global head of macro and strategic asset allocation at Fidelity International
If the Fed’s forecast is broadly right, the US will have spent roughly eight years with inflation above target before price stability is restored. That is closely aligned with the regime embedded in our long-term capital market assumptions, where we have for some time expected inflation to remain more persistent and to settle above the norms investors became accustomed to after the global financial crisis.

The point is not simply that inflation is taking longer to fall. The structure of the economy has changed. Geopolitical fragmentation, energy security, larger fiscal footprints, supply-chain duplication, and the capital intensity of the AI investment cycle all point towards a world in which inflation is likely to remain more persistent.

The Fed’s own projections are increasingly acknowledging that reality. Warsh’s press conference was also hawkish and broadly consistent with his Jackson Hole message. He also said the Fed had removed a dose of accommodation, implying that he still sees rates as below short-term neutral. Inflation remains too high, and the Fed needs clearer evidence that it is moving towards target at sufficient speed. Until then, the bias remains toward tighter policy.

There was still no conventional forward guidance. But compared with July, the reaction function is easier to read. Inflation remains above target, activity is resilient, and capital spending is strong. Unless that combination changes, further tightening remains on the table.

Ron Temple, chief market strategist at Lazard Asset Management
“Today’s rate increase was an easy decision for the Fed, with US inflation above the 2 per cent target for over five years and the labour market at full employment. Another hike before year end appears to be a done deal too, but with ongoing geopolitical and energy price uncertainty emanating from the Persian Gulf, the 2027 policy outlook is murkier.

Richard Carter, head of fixed interest research at Quilter Cheviot
For the first time in more than three years, the Federal Reserve has unanimously voted to raise interest rates, as the conflict in the Middle East takes its toll on the American economy. This move higher had been coming and the Fed arguably held it off for as long as they could. However, with energy prices taking a renewed step higher and inflation remaining persistently well above target, it was inevitable that the central bank would need to take this step.

This is a pivotal moment for Kevin Warsh too. He was brought into the Fed as Trump’s guy, poised to deliver the rate cuts he so desperately wants. However, his first move of significant impact is in fact an interest rate rise, and this risks hampering the relationship between the two and thus a repeat of the barbs Jerome Powell suffered during his tenure. Warsh will be hoping this action is swift, although energy prices are ultimately what is driving inflation right now rather than what is going on within the US economy.

Indeed, going forward the Fed will want to see tensions in the Middle East calm significantly and for a considerable period of time before it can start to look past this inflation spike. Inflation in the US has refused to come back down to target ever since the pandemic and today’s decision confirms that we are very much in a higher-for-longer period. For now, Warsh is backing up his words that the Fed has “work to do” on inflation, but soon he will need to consider how long this work is likely to take.