US hikes interest rates - to Trump's annoyance

Alex Ritzen (0:00)

This is The Global News Podcast from the BBC World Service.

I'm Alex Ritzen and in the early hours of Thursday 17th September, these are our main stories. The US Federal Reserve puts up interest rates for the first time in three years, despite loud calls from President Trump to lower them. Nepal has revised upwards to more than 6,000, the number of people still missing after last month's devastating flash floods. And athletes criticise conditions at the Asian Games in Japan. Some competitors can't even fit into the beds.

Sergio Pasca (0:40)

Also in this podcast, we build a new model that allows us to actually capture aspects of human brain function in a way that has not been possible before.

Alex Ritzen (0:50)

Frankenstein rodents. We hear about the part mouse, part human brain. And the world's best pizza is apparently not found in Italy.

Rising prices, soaring fuel rates and the cost of living are hitting consumers and financial markets globally. So much so that for the first time in three years, the US Central Bank, the Federal Reserve, is raising interest rates for the biggest economy in the world by a quarter of a percentage point in the hope it will bring down inflation. But the US President, whose demanded cuts, responded with a loud social media post writing in all caps, lower the interest rates for the United States of America and fast. This is not the script Donald Trump expected from the man he appointed as the new Fed chair. But Kevin Warsh says inflation is too high.

Kevin Warsh (1:46)

Well, uncertainty remains elevated, owing in part to geopolitical developments, domestic spending has been resilient. Productivity growth, strong, and capital investment is robust. Job gains have kept pace with the workforce, and the unemployment rate has changed little. But inflation remains elevated. Today's policy action will support a timelier return to the committee's 2% goal.

Alex Ritzen (2:12)

Our business correspondent in New York is Samira Hussain. She gave us her assessment.

Samira Hussain (2:17)

Kevin Warsh says that the US economy is doing really well despite the geopolitical developments, as he put it. And presumably, he's referring to the war with Iran, which has been a big driving factor for inflation in America right now. Inflation here has been running above the target rate of 2% for about five years, but it was hovering around 2.5%.

But now we're seeing this jump since February to 3.4%. And this is having a huge impact on all Americans. They are having to pay so much more for the same things that they did just a year ago. And that's really putting a lot of pressure on the American consumer.

Alex Ritzen (3:03)

And now they're going to have to pay more for their interest rates. It's going to hurt, isn't it?

Samira Hussain (3:10)

It's going to hurt for those people that are looking to borrow money. It's going to put pressure on those people that are looking to buy a home or get a car loan.

But what Kevin Warsh was trying to say in the press conference is that this is about the American consumer and very much the consumer that is living paycheck to paycheck, where the cost of living has been so high and it is making it very difficult for people to make ends meet. Even when you look at the labor market, which Kevin Warsh had also said is doing really well in the United States, you see that wages aren't going up in line with inflation, and that's also making it even harder for the American consumer.

Alex Ritzen (3:51)

This is like the bottom interest rate, though. This is the interest rate upon which everything else is set. 3.75 to 4 percent plus whatever your lender adds on the top. People aren't used to interest rates at this level, are they?

Samira Hussain (4:07)

We certainly haven't seen interest rates this high in a very long time. And then if you look at the bond market, the 10-year treasury yield, which is also a big indicator and perhaps more of an indicator in terms of what your mortgage rate is going to be. Here in the United States, we're looking at mortgage rates that are in the 7 percent realm. And just six, eight months ago, you could still get a mortgage for about 3 to 4 percent. So it's been really dramatic increases and it's going to start putting a lot of pressure on different parts of the American economy.

Alex Ritzen (4:41)

And this is an international issue, isn't it? Everyone else is facing a rise too.

Samira Hussain (4:47)

Everyone else is facing a rise because everyone else is also facing inflation because everyone else is also facing similar inflationary pressures because of the high cost of energy.