Fed raises rates for first time in three years

The Federal Reserve increased its benchmark interest rate by a quarter point to about 3.9% on Wednesday, the first hike since 2023, aiming to combat stubbornly high inflation.

Higher rates mean costlier borrowing

The rate increase will eventually lead to higher borrowing costs for mortgages, auto loans, and credit cards as the Fed signals another potential hike later this year.

Inflation remains stubbornly high

Inflation was 3.7% in July, well above the Fed's 2% target, while core inflation excluding food and energy hit 3.3%, driven partly by the Iran conflict pushing up gas prices.

Warsh emphasizes inflation fight

Fed Chair Kevin Warsh, nominated by Trump, said inflation is too high and the Fed must be confident it's moving toward its target at sufficient speed.

“The plain fact is that inflation is too high and has been for too long.”

Global conflicts driving rate hikes

Warsh cited renewed combat between the U.S. and Iran, which has driven up gas prices, as a factor convincing Fed officials to support rate hikes alongside other central banks worldwide.

“There's no hiding from hot spots around the world.”

Trump attacks Fed as political

Trump accused the Fed of being hostile and political, claiming officials are raising rates to hurt him ahead of midterm elections just seven weeks away.

“They're a bunch of politicians. They're raising rates to make Trump do as bad as they can possibly do.”

Warsh promised independence to Senate

In April, Warsh told the Senate Banking Committee he did not promise Trump he would cut rates and said he would be an independent actor as Fed chair.

Warsh reversed course on rate cuts

Last year, Warsh suggested the Fed could reduce rates, echoing Trump's calls for lower borrowing costs. Now as chair, he's leading the effort to raise them.

Consumers still spending despite gloom

Retail sales jumped 1.2% in August, showing consumers are spending at healthy levels despite surveys indicating Americans remain pessimistic about the economy.

More rate hikes likely by December

The Fed meets again in late October but is expected to hold rates steady due to proximity to midterm elections. Wall Street analysts see a rate hike by December as nearly certain.

Policymakers unanimously back the hike

All Fed policymakers supported the rate increase, a shift from July when three officials dissented. Sixteen of 18 policymakers project at least one more hike this year.

Tariffs and AI adding to inflation

Trump's tariffs continue elevating costs for appliances and other goods, while ongoing AI investment has driven up prices for computer chips and electronic equipment.

Warsh has family ties to Trump

Warsh may have some protection from Trump's criticism because his father-in-law Ronald Lauder is a billionaire friend and campaign donor to the president.