Federal Reserve Interest Rates, Reports Reveal Iran War Costs, Kennedy Center Closure

Leila Fadel (0:02)

The Federal Reserve is expected to raise interest rates today for the first time in three years.

A Martínez (0:07)

The Iran War pushed inflation higher. How much more expensive could borrowing get?

Leila Fadel (0:11)

I'm Leila Fadel. That's A Martinez, and this is Up First from NPR News.

Two new reports put the cost of the Iran War above $30 billion. They also detailed the damage to US bases from Iranian attacks and shortages of key weapons. What do the reports reveal that the Pentagon has not?

A Martínez (0:31)

The Kennedy Center board says the historic arts complex is in dire condition and voted to shut it down. The decision came just after a judge said President Trump's name cannot go on the building, and Trump says he won't make renovations unless that changes. Stay with us. We got the news you need to start your day.

The Federal Reserve is expected to raise interest rates today.

Leila Fadel (0:57)

Prices have been climbing faster than wages in recent months, so the typical worker has been losing ground. Inflation has been higher than the Central Bank wants it to be for a long time.

A Martínez (1:07)

NPR's Scott Horsley joins us now. Scott, it's been more than three years since the Fed has raised interest rates. Why do it now?

Scott Horsley (1:15)

A, the US war with Iran has rekindled inflation, pushing oil and gasoline prices higher. The Congressional Budget Office warns the war is likely to keep putting upward pressure on prices into next year. Just today, AAA said the price of diesel had jumped to another record high, $6.31 a gallon.

And Fed Chairman Kevin Warsh renewed his promise to get inflation under control when he spoke last month in Jackson Hole, Wyoming. While higher interest rates won't automatically bring lower prices of the gas pump, raising rates is the Fed's primary tool for fighting inflation. And forecaster Omer Sharif says if the Fed doesn't use that tool, after Warsh's hawkish speech last month, the Fed risks losing credibility.

A Martínez (1:56)

I just think it's time to either raise rates or just sell the market.

Scott Horsley (2:00)

We don't lay on raising rates. It doesn't really matter what happens with inflation.

A Martínez (2:03)

We're just going to sit tight.

Scott Horsley (2:04)

Investors are definitely anticipating that the Fed will deliver on Warsh's hawkish comments this afternoon, market odds of a rate hiker north of 90 percent.

A Martínez (2:13)

Okay. So that's the answer to why on raising interest rates. Next question, Scott, how high?

Scott Horsley (2:19)

The Fed is expected to raise its benchmark interest rate by a quarter percentage point today. And then beyond today's meeting, we'll see what happens. The Central Bank has two more meetings on the calendar this year. It's possible the Fed could push rates higher, especially if inflation remains elevated.

But Sharif suspects Warsh will temper any rate hike today with a cautious news conference, so investors don't walk away thinking that additional rate hikes are necessarily baked in.

In addition to the Chairman's news conference, we're going to get a series of forecasts this afternoon from the other members of the Fed's rate-setting committee, indicating where they think interest rates might be going. Back in June, the average Fed policymaker was projecting only one quarter point rate hike this year, followed by a rate cut next year. We'll see if those forecasts have changed now that we've had another burst of energy-related price hikes.

A Martínez (3:09)

Those forecasts, Scott, how reliable are they?

Scott Horsley (3:12)

Well, they're not a roadmap and they're not a promise. They're really just kind of the series of best guesses of where the individual committee members think rates might be going based on their personal views of the economy. Obviously, wars and tariffs and other events can change those views and thus the outlook for interest rates.

By the way, Chairman Warsh will probably not offer a forecast today. He did not make one in June and he has generally discouraged any kind of forward guidance. Warsh thinks that can tie the Fed's hands and leave policymakers with less room to maneuver. Not all of his colleagues are on the same page, however. Fed Governor Chris Waller spoke at a Reuters event earlier this month and Waller said he generally doesn't think it's helpful for the Fed to try to surprise people.

Chris Waller (3:55)

If you were at the State Transportation Department and you were going to close down three lanes of a highway, you cannot say a word and let people just come piling into this construction zone or you can start giving them signs way in advance saying, look, there's construction ahead. I think we all would prefer to get the information prior to make better decisions.