After a gap of more than three years, the Federal Reserve has finally raised interest rates again.

This 25-basis-point hike brings the federal funds target range up to 3.75%-4.00%, marking the first rate hike since July 2023.

However, the hike was largely within market expectations, and after the decision was announced, the market did not see any particularly significant volatility.

The dot plot is still more noteworthy:

The median interest rate projection for 2026 indicates that another rate hike is highly likely within the year. Currently, 16 policymakers expect at least one more rate hike this year.

Why has the Fed suddenly shifted back toward raising rates?

The core reason comes down to two words: inflation.

In particular, the ongoing conflict in the Middle East has continued to push up energy prices recently, while crude oil prices are adding further pressure to inflation expectations. If geopolitical tensions ease and oil prices retreat later on, relieving inflationary pressure, the Fed’s policy room will naturally reopen.