📈 US Fed Hikes Rates to 4% Amid Inflation & Geopolitical Pressures

• Policy Move: The US Federal Reserve increased interest rates by 25 bps (0.25%) to 4%, marking its first rate hike in over three years. The decision aims to bring inflation back to its 2% target amid solid domestic spending. • Macro Drivers: Soaring global fuel and energy prices, driven by ongoing US-Iran conflict, continue to weigh on the economy and sustain elevated inflation rates. • Political Friction: US President Donald Trump publicly criticized the decision via Truth Social, demanding rate reductions to 1% or lower to boost economic growth ahead of upcoming midterm elections. • Macro Implications for Sri Lanka: • External Debt & Capital Flows: Higher US rates typically strengthen the US dollar, increasing external debt-servicing burdens and creating potential currency depreciation pressures for emerging markets like Sri Lanka. • Trade & Exports: Tighter US monetary conditions could cool demand in major export destinations for apparel & textiles, while global oil price volatility continues to pose import cost challenges for energy and logistics.