For the first time in three years, the U.S. Federal Reserve has raised interest rates by 25 basis points to a range of 3.75–4%, marking its first increase since mid-2023.
Federal Reserve Chairman Kevin Warsh explained that the decision was necessary to address rising inflation. “The least well-off are those who benefit most from stable prices,” he stated during his press conference after the meeting. “The decision we made today was the right one, within the authority given to us by Congress, to ensure stable prices.”
Inflation has remained above the Federal Reserve’s 2% target for more than five years. The Labor Department reported that consumer prices rose 3.4% in August from a year earlier, with monthly growth quadrupling compared to July.
President Donald Trump criticized the rate hike, threatening to suspend trade with countries that have a trade deficit with the United States if borrowing costs are not reduced soon. “If we wanted to get rid of the deficit, which we could do with the stroke of a pen, we would earn $1.5 trillion a year,” Trump stated. He also asserted that interest rates should be lowered to 1% or lower.
The Fed’s action triggered declines in major stock indices and bond yields. The Dow Jones Industrial Average dropped 631 points (1.2%) following Warsh’s press conference, while the S&P 500 index fell by 0.4%. Treasury bond yields rose, with the two-year yield climbing to 4.73%.
Trump indicated he had spoken with Warsh but maintained his stance on rate cuts, stating, “The interest rates are too high.”
