Fed raises key rate to 4% in first hike since 2023, defying Trump

The Federal Reserve lifted its benchmark interest rate by a quarter point on Wednesday, bringing the target range to 3.75%–4% for the first increase in more than three years. The unanimous vote by the Federal Open Market Committee defied President Donald Trump, who had pressed for a cut.

Fed Chair Kevin Warsh said the move was necessary because "inflation is too high and has been for too long." In a statement, the committee said "uncertainty remains elevated owing, in part, to geopolitical developments," and that the hike would "support a timelier return to the Committee's 2 percent goal."

The decision marks the first rate move in any direction since a cut in December 2025. The last increase before Wednesday came in July 2023, according to the BBC.

Trump responded on social media with a demand to "LOWER THE INTEREST RATES FOR THE UNITED STATES OF AMERICA, AND FAST!" He later told reporters the Fed board was "hostile" and "very political," though he expressed support for Warsh.

The rate hike follows inflation data showing prices rose 3.4% in August from a year earlier, above the Fed's 2% target. The war with Iran has driven oil and gasoline prices sharply higher, with diesel reaching a record $6.31 a gallon on Wednesday, according to AAA.

Warsh said the central bank "cannot affect any individual price, whether it be oil prices, whether it be foodstuffs at the grocery store." But he said the Fed can work to ensure price changes "don't broaden out, don't have second- and third-order effects in the economy."

Major banks including JP Morgan, KeyCorp, and BNY raised their prime lending rate to 7% from 6.75% after the announcement, increasing costs for credit cards and personal loans. Mortgage rates have climbed over the past year, with a 30-year fixed deal averaging 6.76%, according to Freddie Mac.

Stock indexes reversed earlier gains as Warsh spoke. The S&P 500 closed 0.4% lower, the Nasdaq ended flat, and the Dow fell 630 points, weighed down by declines in IBM, Goldman Sachs, Boeing, and American Express.

More hikes expected

Most Fed policymakers expect another quarter-point increase before the end of the year, which would bring the target range to 4%–4.25%. A small majority projected rates could rise further to 4.25%–4.5% next year before cuts begin in 2028 and 2029.

Warsh declined to give his own forecast, saying he had "nothing for you on a discussion with the president" when asked about his message for Trump.

“Warsh and the committee are sending a clear message that the Fed will not tolerate inflation drifting further above target, even in the face of political pressure from the White House.”

: Brian Rehling, co-head of global fixed income at Wells Fargo, told NBC News