The Fed Raises Interest Rates For the First Time in Three Years

For the first time in three years, the Federal Reserve raises interest rates. Plus, Hoothi Rebels take credit for shooting down a Saudi fighter jet as they gain control over a key oil corridor. The Hoothi seem to be maximizing their effort to try to project power internationally and yet another endangered waterway. And business leaders take sides in the debate over AI regulation. It's Wednesday, September 16. I'm Alex O'Sullett for the Wall Street Journal. This is the PM edition of What's News, the top headlines and business stories that move the world today. The Federal Reserve raised rates by a quarter percentage point today. Its first interest rate rise since 2023. The increase approved unanimously by the Fed's governors was widely expected by markets. Fed Chairman Kevin Warsh said that recent data showed that the labor market was strong, while inflation continued to remain above the Fed's 2% target. The plain fact is that inflation is too high and has been for too long. For more on the Fed's decision, I'm joined now by WSJ Economics reporter Matt Grossman. Matt, of course, the Fed raised rates today after holding them steady at the last meeting. What has changed in the last seven weeks or so to warrant this decision? Over the summer, Fed officials really wanted to see inflation making more progress cooling toward their 2% target. In the latest inflation data we got earlier this month, there just wasn't really the evidence for that. And given that inflation has been above the Fed's target for five years now, I think many officials' patience was just wearing out. A lot of people were really expecting a negative reaction from President Trump over this decision. He had specifically brought Warsh in to be chairman of the Fed to lower interest rates. What is Trump's reaction to this move? So we haven't heard from the President just yet a White House spokesman called the decision unfortunate. On Wednesday afternoon, stocks turned a lot lower after the press conference. You know that's probably not going to be something President Trump likes very much. A big part of the challenge here will be for Warsh to handle that tension because it really came to define a big part of Chair Powell's tenure. We'll see if Warsh can navigate that relationship any more smoothly. One of the questions that a lot of people had coming into today's decision was about the Fed's independence and whether Warsh would do essentially what Trump was asking, the Fed has not done that. So does this reiterate the Fed's independence? Investors were concerned that Chairman picked by Trump might be someone who's just going to go along with the President's desire for lower interest rates. The data really weren't cooperating and so investors are going to be reassured that when push came to shove here, Chairman Warsh, even though he was picked by President Trump, still navigated to a rate hike when it was needed. This has to be reassuring on that front. The Fed has two more meetings this year in October and December. Did they give any indication of whether more rate hikes are likely? They released a dot plot. This is a set of forward projections for what they anticipate doing next. Most of the officials wrote down that they expect this was not the last rate hike of the year. Most of the officials said that they think at least one more is coming this year. A small handful of officials thought that we could get two more rate hikes this year. Now, Chairman Warsh does not like the dot plot. He does not participate. So instead, we're seeing the projections of the 18 other officials on the committee. But from what we saw today, they were nearly unanimous that even in the next few months, we're going to get another rate increase. That was WSJA economics reporter Matt Grossman. Thanks so much, Matt. Thank you. The Fed's decision since stock and bond prices lower, the Dow led the losses falling 630 points or 1.2%. Traders seem to come out of WSJA's press conference expecting more rate hikes than they did before it started. Bank stocks were particularly hard hit today with Goldman Sachs falling about 4% and the Bank of America dropping 2.7%. In Treasuries, the 10-year yield settled above 5% for the first time since 2007. Brent Crude futures slipped 2.7% to $105.83 a barrel. Coming up, how Yemen's Houthi rebels seized control of one of the world's most important oil choke points. More after the break. The debate over AI regulation has continued in Washington and beyond this week. It seems to mostly be breaking into two sides. Those who agree with open AI, CEO Sam Altman and Anthropic CEO Dario Amade in calling for a slowdown and regulation over AI, and those who agree with President Trump, that no regulation is necessary. Executives mostly seem to be in that first category. In a poll of business leaders who attended an invitation only gathering of executives in Washington this week, 93% said Trump was incorrect in calling AI's potential catastrophic dangers a hoax, as he did earlier this week. Business leaders hailed mostly from industries and parts of the country outside Silicon Valley, but other tech leaders have distanced themselves from alarmists. Yesterday, Nvidia CEO Jensen Wong told CNBC that AI companies should solve safety questions themselves through engineering, and similarly met a CEO Mark Zuckerberg posted on social media that it's up to each AI company to ensure their products are safe. And we're exclusively reporting that states haven't yet been able to obtain COVID-19 shots from the Centers for Disease Control and Prevention, delaying their distribution to millions of children through federal programs. That's according to people familiar with the matter. A spokesperson for Health and Human Services said that COVID-19 does not follow the same seasonal pattern as flu and other respiratory viruses, and that it's still finalizing its decisions on vaccine procurement. Elsewhere in Washington, the Trump administration is planning one of its biggest ever sales of heavy bombs to the Israeli military. According to US officials familiar with the plan, their proposed $2.8 billion arm steel includes 40,000 of the US's 2,000 pound bombs and 20,000 bunker-busting warheads known as I-2000s. The plan sale shows that the US continues to support Israel, despite recent tensions between President Trump and Israeli Prime Minister Benjamin Netanyahu, and declining American public support for Israel. Democratic Representative Gregory Meeks, the ranking member of the House Foreign Affairs Committee, said he opposes the sale because of how the weapons would be used, but his opposition is unlikely to stop the deal outright. The White House declined to comment. The State Department also declined to comment on the pending arms sale, but defended US military aid to Israel. Over in the Middle East, Yemen's Houthi rebels are making headlines. At the start of the Iran War earlier this year, it seemed like the Houthis were going to sit this conflict out. Then, over the weekend, that changed. The Houthis launched a lightning offensive to seize the Babel Mendebs Strait, an 18-mile wide choke point that is to the Red Sea with the Strait of Hormuz is to the Persian Gulf. The move has sent global oil prices higher and made the Houthis a key player in a conflict that doesn't seem much closer to resolution. Deputy Middle East bureau chief John Gambrill joins me now from Dubai. John, today, the Houthis said that they shot down a Saudi F-15 fighter jet. Saudi Arabia's media ministry didn't immediately respond to a request for comment, but two people familiar with the incident say a Saudi plane had been downed. This is a bit surprising to me because the Houthis have had a tentative ceasefire with the Saudis for a few years now, and the Saudi government has even been paying some salaries for Yemeni government employees, which made the Houthis happy. Where does that relationship stand today? The relationship isn't good right now. We have had the Saudis alleged that the Houthis launched to drone towards Mecca, the holy city in Islam. The Houthis have denied this repeatedly, but definitely the Houthis are hitting targets in Saudi oil infrastructure, other areas, and the southern part of the Kingdom. And that's causing a lot of problems. They're trying to reach out internationally to see if they can get more of a coalition to fight back the Houthis. But it remains sort of unclear what the ultimate end goal would be because the Houthis have successfully held Yemen's capital since 2014, and so far no one has been able to challenge them, not even during those airstrikes that the U.S. launched during Operation Rough Rider last year. I mean, the Houthis have really withstood a number of efforts to topple them, including the Americans, as you mentioned, but also intervention by Saudi Arabia, the UAE during Yemen civil war. What is the Houthis military or tactical advantage? The Houthis operate almost like a guerrilla force in the territory that they hold a weaponry that they use as some military analysts describe as scoot and shoot. So they're able to use trucks and other vehicles to drive missile launchers to areas, fire off those missiles, and then immediately drive away, which makes it difficult for any sort of opposition force to strike them. Now, that's not to say that the Americans had no success during the Operation last year. They did kill mid-level and some top leaders within the Houthis leadership, including people behind the explosives, the missiles, the drone program. But again, they're able to put up a drone that can hit a ship in the Red Sea, and that can disrupt shipping. As we've seen, it's the same thing that we're seeing in the Strait of Hormuz, and they've been very successful so far. And using the weaponry that's been supplied by Iran, Tehran always denies it, but experts and others have said that this weaponry is coming from Iran to really rain havoc down on the Red Sea and sort of the regional area. Between the pressures in the Strait of Hormuz and Babal Men Deb Street and the attack on the east-west. pipeline last week, what does this mean for global oil prices? With the Saudis out, I mean, that will really put pressure on Saudi Arabia's Asian oil customers that really rely on that. And you know, if Asian oil customers aren't getting that oil, that's only going to make the demand go up. And then we're going to see the prices go up in return and that is the major concern. All this has tied together and even though countries like the US do domestic production now that basically match what they need, you know, the global market determines those overall prices, so that will affect everybody should that oil supply really be disrupted. That was WSJ in Middle East Bureau Chief John Gimbrill. Thanks so much, John. Thank you. And that's what's news for this Wednesday afternoon. Today's show is produced by Anthony Bansi, with supervising producer Katie Ferguson. I'm Alex O'Sullet for The Wall Street Journal. We'll be back with a new show tomorrow morning. Thanks for listening. [BLANK_AUDIO]