The Federal Reserve announced on Sept. 16 local time, after a two-day meeting of the Federal Open Market Committee, that it would raise its benchmark rate by 0.25 percentage point. The target range is now 3.75% to 4.00%.

It is the first increase since July 2023, three years and two months ago. In between, the Fed held or cut but never raised. Wednesday's vote was unanimous, 12-0.

In its statement the Fed noted that inflation remains elevated and said the move was intended to support a more timely return to the 2% objective.

Why now

The immediate driver is energy. As the armed conflict between the United States and Iran continues, crude and gasoline prices have risen and diesel has reached record territory. Higher transport costs spread, with a lag, across food and manufactured goods.

Demand, meanwhile, has not cooled. U.S. retail sales for August, released the same week, rose 1.2% from the prior month, beating forecasts. With prices high and demand holding, the Fed appears to have judged entrenched inflation expectations the greater risk.

Chair Kevin Warsh said at his news conference that price stability is the first order of business. Only days earlier a hold was still widely considered possible; after the inflation data, futures markets put the odds of a hike above 90%.

What the dot plot shows

Of the 18 participants in the accompanying projections, 16 expected one more increase this year, and four of those saw room for two. Warsh has not submitted a dot since taking the post.

Markets have begun pricing the possibility that the tightening cycle runs into the middle of next year. The dot plot is not a promise, however, but a snapshot of individual expectations that oil and employment data can change.

How it travels to Korea, Taiwan and Chinese communities

A U.S. rate rise generally travels along three channels. The first is the exchange rate: a stronger dollar pressures the won and the New Taiwan dollar. The second is bond yields, as rising U.S. Treasury yields lift long-term rates elsewhere. The third is capital flows, which gives money more reason to leave emerging markets.

The Bank of Korea and Taiwan's central bank each have policy meetings ahead. Both must weigh domestic inflation and growth against the gap with U.S. rates.

A third view: whose problem is a rate rise

This paper does not narrow the decision to whether stocks rise or fall. A rate increase works in opposite directions for those holding assets and those holding debt. For households carrying mortgages, car loans and credit-card balances it is an immediate cost; for households with savings it is more interest income.

For Chinese readers in Korea the exchange rate arrives first. A stronger dollar changes what a remittance is worth in won and moves the price of imported foodstuffs and air tickets. For families paying tuition in dollars, the direction is plain.

Three things to watch: whether core inflation follows if oil retreats; whether the 12-0 consensus holds at the next meeting; and whether Asian central banks follow Washington or put domestic growth first.