Fed lifts rates to 3.75-4 percent, first increase since 2023

The Federal Open Market Committee voted 12-0 on Wednesday to raise the federal funds target by a quarter point, to a range of 3.75 to 4 percent. It is the first increase since July 2023 and the first rate decision of Kevin M. Warsh's chairmanship. Warsh took office in late May after President Donald Trump picked him with the public expectation that he would cut borrowing costs.

"The plain fact is that inflation is too high and has been for too long," Warsh told reporters after the meeting. He said the economy was strong and unemployment low, which justified removing what he called "a dose of accommodation." He listed three changes since the July meeting: the economy strengthened, inflation did not slow, and geopolitical tension rose. "All three of those things helped themselves to a firm, unanimous decision today," he said.

August consumer inflation was unchanged at 3.4 percent, above the 2 percent target. Petrol prices were up about 27 percent on the year as the Iran war lifted crude. The policy statement said the action would support a "timelier return" to the 2 percent goal. Officials no longer described upside inflation risks as mainly one-off supply shocks.

The new dot plot showed 16 of 18 participants expecting at least one more quarter-point increase by December, which would put the range at 4 to 4.25 percent. Twelve of 18 put the year-end midpoint at 4.125 percent. Four saw a 4.375 percent midpoint, equal to two more hikes. Two saw no further move this year. The median path holds the rate near 4.1 percent through 2027. Warsh again declined to submit his own dots, part of his refusal to publish forward guidance.

Markets had priced more than a 90 percent chance of this week's hike. After the statement the two-year Treasury yield rose 0.06 point to 4.7 percent. The 10-year held near 5 percent. The 30-year eased to about 5.35 percent. CME FedWatch later put the chance of a follow-up hike this year near 90 percent. Investors now sketch three further quarter-point moves through 2027.

Trump answered on social media within hours. He said rates should be 1 percent or lower. "We are 'carrying' almost every country in the World, and that cannot go on any longer," he wrote. "LOWER THE INTEREST RATES FOR THE UNITED STATES OF AMERICA, AND FAST!" Warsh has said in public that he acts independently. Wednesday's vote, including his own, is the first numerical test of that claim.

Patrick Harker, who left the Philadelphia Fed presidency in 2025, said he expected the Committee to reverse cuts made late last year when officials were guarding against a weaker labour market. Those cuts are now treated as a mistake relative to an inflation rate that has sat above target for nearly six years and reaccelerated after the energy shock.

The statement did not mention tariffs by name. Reuters and other desks have pointed to three sources of pressure that the Committee is discounting as temporary: Trump's import duties, the Middle East energy spike, and heavy capital spending tied to data-centre and chip plants. Warsh's test is whether a quarter point, and one more later this year, is enough to keep those prices from embedding in rents and wages. He told reporters he was not yet confident that underlying inflation was moving toward the target "clearly and at sufficient speed."