Increase in borrowing costs in the United States alongside higher fuel prices

🖌Khashayar Jenidi, BBC correspondent in Washington

Today’s decision by the U.S. central bank, the Federal Reserve, to raise the federal funds rate by 25 basis points and bring it to the range of 3.75 to 4 percent can be seen as a more serious sign of concerns about the persistence of inflation. The decision was approved by all 12 voting members.

This is the first time in the past three years that the U.S. central bank has raised the federal funds rate.

For American families and businesses, an increase in interest rates can lead to more expensive credit, harder financing, and a decline in big purchases and investment. This is the mechanism that helps rein in inflation, but it also increases the risk of slowing economic growth and job creation.

Politically, such a decision is not welcomed by the government of President Donald Trump on the eve of the midterm elections; the president wants lower interest rates, but the central bank has now moved in the direction of raising them. This disagreement can be seen as a test of the independence of the Federal Reserve.

The war with Iran has also been influential in this decision. In July, the Federal Reserve had attributed the jump in energy prices and the increase in the cost of production and transportation to the war, disruptions in shipping through the Strait of Hormuz, and damage to energy-related infrastructure. Now, it can be said that the protraction of the war with Iran has not only caused increased financial pressure on American families due to more expensive fuel, but has also raised borrowing costs for them.