WASHINGTON--The Federal Reserve raised interest rates on Wednesday and flagged more hikes in the coming months, with new U.S. central bank chief Kevin Warsh joining a unanimous decision that effectively acknowledges the Trump administration's inability so far to control inflation that policymakers worry could worsen.
While President Donald Trump had promised to lower prices on his watch, the combined impact of his global import tariffs, an energy shock following the start of the U.S.-Israeli war with Iran, and capital spending from the artificial intelligence boom has kept price pressures intense enough that the Fed felt it needed to raise its benchmark overnight interest rate by a quarter of a percentage point to the 3.75%-4.00% range.
Updated quarterly economic projections showed 16 of 18 policymakers anticipate at least one more quarter-percentage-point hike by the end of this year, with only two of them seeing rates remaining stable from here. All but one indicated they saw upside risks to inflation that they no longer described as largely arising from one-off supply shocks.
Warsh, who again did not submit rate or other economic projections, attributed the need for tighter monetary policy in part to an economy he sees as picking up speed, with strong economic and job growth adding to price pressures that no longer seem rooted in oil costs or import tariffs alone.
"There's been a pretty wide-ranging set of data, including the labour markets, that the economy has strengthened," Warsh told reporters in listing the reasons that prompted him to support a rate hike after advocating that rates should remain on hold at the Fed's July 28-29 meeting. "Domestic spending has been resilient, productivity growth strong, and capital investment is robust."
The rate increase was the first such move in three years and the first policy shift under the new Fed chief, who took office in late May after being selected by Trump with an expectation that he would cut rates. "Inflation remains elevated. Today's policy action will support a timelier return to the committee's 2% goal," the central bank's Federal Open Market Committee said in its policy statement after the end of a two-day meeting.
Warsh, speaking in his post-meeting press conference, called the rate hike the "right decision."
"I would be hard-pressed to describe broad financial conditions as restrictive," he said. "This view was widely shared by the committee, so we removed a dose of accommodation."
Trump reacted quickly, repeating what has been a standing call since returning to office in January 2025 that interest rates in the U.S. should be slashed to perhaps 1%, a level usually associated with Fed efforts to boost the economy out of a crisis and something that would likely be inflationary in normal times.
"Interest Rates in the United States should be 1%, or less, because we are the Best Credit in the World — BY FAR. Our Country is BOOMING with new Investment! If we stopped Trading with every country that we have a Deficit with, which is most of them, we would make, at least, 1.5 Trillion Dollars a year. The word 'Deficit' is nothing more than a fancy word for LOSS ... LOWER THE INTEREST RATES FOR THE UNITED STATES OF AMERICA, AND FAST!" Trump said on his Truth Social platform in comments that, while not mentioning Warsh by name, were reminiscent of the sorts of barbs the president launched routinely at former Fed Chair Jerome Powell.
