Fed raises rates for first time since 2023

The Federal Reserve increased the federal funds rate by 0.25 percentage points to 3.75-4%, its highest level since December 2025, as Middle East conflict drives up global energy prices and fuels inflation.

Rate hike affects borrowing across the economy

The benchmark federal funds rate influences borrowing costs for credit cards, auto loans, mortgages and personal loans throughout the U.S. economy.

One more hike expected this year

Fed Chair Kevin Warsh said the rate-setting committee expects to raise rates once more in 2026, but then hold steady throughout 2027. The vote to hike was unanimous.

“For more than five years, inflation has been running above target.”

Inflation remains stubbornly high

The Consumer Price Index rose 3.4% annually in August, well above the Fed's 2% target. Warsh said inflation has been too high for too long, making price stability the Fed's primary focus.

“For more than five years, inflation has been running above target.”

Trump opposes the rate hike

President Trump called for lower rates, posting on Truth Social that U.S. interest rates should be 1% or less. The Fed did not comment on the president's position.

“LOWER THE INTEREST RATES FOR THE UNITED STATES OF AMERICA, AND FAST!”

Stock market tumbles on hawkish signals

Stocks fell after Warsh said the economy is strengthening and reiterated commitment to taming inflation, signaling the Fed may hike further if needed. The Dow dropped 1.2%, while the S&P 500 fell 0.4%.

Consumer borrowing costs will rise

Banks are likely to raise interest rates on credit cards and loans in response to the Fed hike. This comes as Americans already face higher costs for gas, food and essentials.

“Consumer sentiment is now 13% below where it was this time last year.”