Fed Raises Interest Rates, Iran War and Oil Prices, EU-Canada Alliance

0:02President Trump's handpicked Fed chair Kevin Warsh did the opposite of what Trump wanted him to do. He raised interest rates.

0:08Ayesha Rascoe:The president is not happy and pressed the Fed to reverse course and lower rates. How is the new chair reacting to the pressure? Amir Martinez, that is Michelle Martin, and this is Up First from NPR News. From Syria to Portugal, people are protesting higher fuel prices. With the war in Iran showing no sign of ending, countries are drawing from their oil reserves, and Saudi pipelines are under attack. Canada's prime minister will address the European Parliament today after an invitation to become the EU's first associate member. Trump threatened more tariffs if he decides it's a hostile act. Stay with us.

0:42Ayesha Rascoe:We'll give you news you need to start your day.

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1:59Ayesha Rascoe:Interest rates are higher this morning after the Federal Reserve raised them for the first time in three years. The vote on Wednesday was unanimous. And now the Fed's benchmark short-term interest rate is a quarter of a percentage point higher, which is exactly the opposite of what President Trump wanted when he chose a new Fed chair. NPR is going to sell you because you're here to walk us through the latest good morning. Hello, hello. OK, so we know what happened. Let's talk about why and what it means that the Fed has raised the interest rate. Well, it means the Federal Reserve is making the move to cool down inflation.

2:29I'll tell you my corny metaphor for this. You know how in a fire there's like a red box that says, in case of emergency, break glass? Well, if you think of inflation as a fire, the rate hike is like the Fed saying emergency and breaking that glass to grab the extinguisher. But the Fed is also hoping they don't have to, like, blast away for a long time, which is to say the Fed's rate-setting committee signaled one more rate hike this year. And that's it.

2:54Ayesha Rascoe:Not quite a dad joke, but we'll take it. So I'll do my best. Let's get to the political drama here. Trump pressured the previous Fed chair, Jerome Powell, to lower interest rates. He even threatened to fire Powell over this. Not clear that he could, but he threatened it. So Powell's term as chair ended. Trump picked a replacement, Kevin Warsh. And now, pretty soon after Warsh took over, the Fed raised rates. So where does this leave the Fed share now? Yeah, last night, Trump again on social media pressed the Fed for lower rates. This dynamic came up a lot in Warsh's press conference yesterday.

3:22Like Powell, Warsh refused to engage. He kept saying the Fed is independent, the Fed should stay in its lane, and he has nothing to say about the president. Say more about the argument for raising rates. So fundamentally, the Fed has a certain credibility to maintain, and the data is the data, which is what Warsh essentially said. The inflation trends are simply not improving. The plain fact is that inflation is too high and has been for too long. Inflation has been above the Fed's goal for five years. And Warsh made the case that this is a strong economy to absorb this rate hike. People are employed.

3:56They're still shopping. Actually, just yesterday, we got the latest data on retail sales that showed people spending more across the board, including on fun things like hobby supplies and sporting goods. The Fed has to walk a narrow line putting the brakes on the economy without tipping it into a recession. And that's part of why this rate hike is not huge, only a quarter of a percent.

4:14Ayesha Rascoe:And also you were reminding us that actually it wasn't just worse. It was all 12 members of the Fed rate setting committee voting unanimously. OK, so for people who aren't economists, how does a rate hike by the Fed work to fix inflation? Raising interest rates makes it more expensive to borrow money, which theoretically means people and businesses will think long and hard before getting a mortgage or a business loan, buying a car, shopping on credit. And that kind of cool down forces prices to stay in check. But only theoretically, though? Well, one big factor right now is the fact that the big driver of current inflation is the war in Iran.

4:48It has pushed up the cost of gasoline and the price of diesels at historic highs. And that's definitely not something an interest rate hike can fix. The Fed also has no say on tariff policy, which is another driver. And we have the fact that wages have not been keeping pace with inflation. For five months now, people's paychecks have been losing their buying power. Walsh hopes the stable prices will help families keep their heads above water. Either way, any positive effects of this are unlikely to be very quick.

5:17Ayesha Rascoe:That is. NPR's Alina Selger. Alina, thank you. Thank you. People around the world have been protesting over rising gas prices. And it comes as Saudi Arabia, the world's biggest oil exporter, faces a renewed war in Yemen against the Houthis with attacks on its energy infrastructure. NPR International correspondent Aya Bacchawi is covering this from Dubai. Good morning, Aya. Good morning, Michelle. So let's start with the fallout from higher energy prices. Yeah, so this spike in prices is leading to protests in Syria, the Philippines, Indonesia, and other countries. You also have Bangladesh rationing electricity with frequent power cuts there.

5:51And this latest war in Yemen and the attacks on Saudi energy from that just adds to the existing pressure on oil markets where prices are way up. Diesel has already hit a record high in the U.S., and that means higher costs for trucking and farming. Brent crude has been trading about$105 a barrel. That's up some 50 % from before the war with Iran. So you have all these various pressures now on refineries across the Gulf, from the tax on their infrastructure from the U.S. war in Iran, to continue to tax on shipping through the Strait of Hormuz. And we know that countries are drawing from their strategic oil reserves to try to plug the gap.

6:25Ayesha Rascoe:So tell us how this escalation between the Saudis and the Houthis challenging energy supplies. So Michelle, let's start with the numbers. Data from OPEC shows that Saudi Arabia's oil output fell to around 6.2 million barrels a day last month. Now compare that to 11 million barrels a day before the U.S. war with Iran. And the Saudis are now facing these two chokeholds, one in the Strait of Hormuz and, since July, a blockade on its ships by the Houthis through Beban Mendeb. That is the other key shipping straight through the Red Sea. The Saudis were using the Red Sea to bypass the Strait of Hormuz.

6:56But because of these Houthi attacks on Saudi ships, the kingdom is now taking a much longer and more expensive route. They have to go up north through the Suez Canal, then through the Mediterranean Sea and all around Africa just to reach buyers in Asia. But then Saudi Arabia's energy ministry confirmed that a 750-mile-long pipeline that was carrying oil from Saudi refineries in the east to the western coast in the Red Sea was hit by drones, this time from Iraq, forcing that pipeline to shut down last week. And the Saudis have not disclosed how long repairs could take or the extent of damage on it or other Aramco sites that have been hit recently by the Houthis.

7:32But NPR has seen satellite images of damage to that pipeline's pumping stations.

7:37Ayesha Rascoe:And let's not forget about the human toll of these wars in the Gulf. What can you tell us about that? Yes, Michelle, let's start with Iran. There's a report out today by a UN investigative body that says there are reasonable grounds to believe the U.S. committed war crimes in airstrikes on Iran at the start of that war. They say those airstrikes killed at least 178 civilians, including 120 schoolchildren at a school in Manab in southern Iran. The Pentagon is still investigating that attack. And Yemen, well, it is reeling from 11 years of conflict. But this month, the fighting between the Houthis and Saudi Brecht, groups for territory along Yemen's western coast, has displaced more than 100 ,000 people, according to the UN.

8:21And we have reached out to people in Yemen who say there is simply not enough shelter or aid to assist everyone and that families are just sleeping under trees. And the Houthis say the Saudis have fired hundreds of airstrikes on Yemen in past days, and the Saudis say dozens of people have been wounded in the kingdom from Houthi attacks.

8:38Ayesha Rascoe:Are there any talks going on, maybe behind the scenes, to calm things down? Well, Egypt is getting involved a bit. We know the Saudi Crown Prince visited Cairo this week, but President Trump, you know, he's still mired in the war in Iran. And so he hasn't shown any willingness so far to strike the Houthis like he did last year. And now Vice President Vance says the U.S. is talking with the Houthis. An official in Saudi Arabia who spoke anonymously in order to discuss security matters confirmed to NPR that there was a meeting over the weekend between the U.S. and the Houthis in Oman. And the official says that CENTCOM chief Brad Cooper briefed Saudi Crown Prince on Monday about that meeting and said that the Houthis said they would not attack U.S.

9:19or Israeli vessels in the Red Sea, that those attacks are focused only on Saudi oil tankers and carriers. And that official told NPR that even after that meeting with the Houthis, Michelle, the U.S. is helping the Saudis with planning and sharing intel on Houthi forces and weapons depots.

9:35Ayesha Rascoe:That is NPR correspondent in Dubai, Aya Batraoui. Aya, thank you. Thank you.

9:48Ayesha Rascoe:Canada has made it clear it does not want to become the 51st U.S. state, but will it become a 28th member of the European Union or something like it? That was a proposal on Wednesday from the European Commission head in a speech to the EU Parliament in Strasbourg, France. Canadian Prime Minister Mark Carney will address that parliament this morning. We're going now to NPR's Eleanor Beardley, who's been following all this from Paris. Good morning, Eleanor. Good morning, Michelle. So what exactly happened? What has the EU proposed? Well, yesterday, the head of the European Commission, Ursula von der Leyen, addressed the European Parliament in her annual speech, often referred to as the EU's State of the Union.

10:25And apparently it was a surprise. It wasn't in the draft. She proposed making Canada the first associate member of this economic and political union. Now, Canadian Prime Minister Mark Carney was there. He smiled, got up and embraced von der Leyen in front of the parliament, which gave a standing ovation. and von der Leyen said the move is not against anyone, but clearly had the Trump administration in mind. And she made it clear that Canada and Europe have much to accomplish together. Here she is. We see the world with the same eyes, from AI to climate change, from the Arctic to geopolitics. And we have stood together on Ukraine, on defense, on raw materials and supply chains.

11:06But above all, dear Mark, Europe and Canada believe in democracy. Eleanor, why now? Well, both Canada and the EU have felt bullied by this Trump administration. You know, with the tariffs, the threats to abandon NATO, threats to the Arctic by taking over Greenland. It's frankly been relentless and shocking for countries that are historical allies of the U.S. And it's made Canadians and Europeans realize just how similar their outlook is, how much they have in common. and of course it's pushed them closer together. And both France and Britain have deep roots in Canada, which is a member of the British Commonwealth, and also has French as an official language.

11:46What's been the reaction in Europe? Well, this morning French Foreign Minister Jean-Noël Barreau said, we will have to see what an associate membership means technically, but he welcomed working closer with Canada. This seems for now mostly a symbolic act, but Barreau said Europe decides what it wants and its sovereignty is not negotiable. He again highlighted how the EU and Canada have both felt that their sovereignty has been under attack by this Trump administration. And also this weekend, President Emmanuel Macron will meet with Canadian Prime Minister Mark Carney on French territory just off the coast of Canada, an archipelago called Saint-Pierre-en-Miquelon.

12:23You know, I just spoke with European Parliament member Nathalie Loiseau, who is in Strasbourg in the European Parliament. She says everyone is waiting for Carney's response this morning. and she says there's huge appreciation for his leadership. Loiseau said what really struck her in von der Leyen's speech yesterday is that here is a German politician from the center-right, a former defense minister, someone who's very pro-American. She spoke for an hour and never even mentioned the U.S. or President Trump, preferring to talk about Canada. Here's what Loiseau told me. Saying, well, guys, democracies are under attack.

13:01the geopolitical order is in ruins.

13:05Ayesha Rascoe:So we have to team up the ones who consider that we have a message, we have common interests, we have common values, and we have to work closer. Has President Trump responded? Well, he called Canada joining the EU laughable, but he also said it could be interpreted as a hostile act. And if so, he would put very heavy additional tariffs on Europe. That is. And Paris Eleanor, obviously in Paris. Eleanor, thank you. You're welcome.

13:36Ayesha Rascoe:And that's Up First for Thursday, September 17th. I'm Michelle Martin. And I'm me, Martinez. Today's episode of Up First was edited by Rebecca Rossman, Miguel Macias, Tina Crya, Mohamed Elbardisi, Alice Wolfley, and Lindsay Tati. It was produced by Ziad Butch and Nia DeMas. Our director is Christopher Thomas. We get engineering support from Zach Coleman. Our technical director is Carly Strange, and our deputy executive producer is Kelly Dickens. Join us again tomorrow.

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