Fed raises rates for first time since 2023

The Federal Reserve voted unanimously to increase the benchmark federal funds rate by 25 basis points to 3.75% to 4%. It's the first hike since 2023 and Kevin Warsh's first move as Fed chair under Trump.

Trump opposed the hike but data forced it

Trump called the Fed committee "clowns" for wanting the rate increase, but five years of above-2% inflation, weak consumer sentiment, and a strong August CPI report left officials no choice.

Inflation data made the hike inevitable

August CPI rose 0.4% month-over-month, quadruple July's pace. By Tuesday, futures put the odds of a hike at 93%, making a rate increase more likely than holding steady.

No rate cuts expected through 2027

The Fed's median projection shows the federal funds rate ending 2026 at 4.1% and staying there through 2027, signaling no cuts next year despite Trump's push for lower rates.

Warsh signaled the move without committing

At Jackson Hole in August, Warsh noted that 54% of PCE price index components had risen more than 3% annually, arguing inflation was broad-based. He refused to give forward guidance, preferring officials have a "good family fight" over the data.

“"good family fight" over the data”

Trump's AI argument doesn't hold up yet

The administration argued AI capex will boost productivity and reduce inflation, but the AI buildout is currently bidding up equipment prices with no evidence of long-term productivity gains.