The Federal Reserve voted Wednesday to raise its interest rate target, the first time the central bank has raised rates under new Chairman Kevin Warsh and a move that risks drawing the ire of President Donald Trump.
After a two-day meeting in Washington, the Fed’s monetary policy committee announced it would raise its rate target by 0.25 percentage points to a range of 3.75% to 4.00%. Investors had largely expected that outcome because inflation has been high, driven in part by higher energy costs stemming from the Iran war.
The vote was unanimous. Most Fed officials also see another rate hike before the end of the year, according to new projections published alongside the announcement
The decision to raise rates shows that the Fed is focused on driving down inflation. Warsh has signaled for weeks that his priority will be slowing the pace of price increases, including during his annual address at the Jackson Hole Economic Policy Symposium.
Fed officials described the economy as “solid,” despite the headwinds from the Iran conflict.
Through the early part of Warsh’s tenure, Trump had given him more leeway with the conduct of monetary than his predecessor, Jerome Powell. Even as Warsh declined to fulfill Trump’s stated wishes by lowering the interest rate target, Trump spared him blame and suggested instead that the overall monetary policy committee was stymying Warsh. Trump had said that Warsh is “fantastic” and “wants to do the right thing,” but is dealing with a “political” Fed board.
Still, ahead of this week’s rate decision, Trump threatened to cut off trade to countries with which the U.S. has a trade deficit if the Fed doesn’t lower interest rates.
Despite the threat, inflation is the Fed’s primary concern. It has been above target for more than five years.
Inflation held at a 3.4% rate for the year ending in August, the Bureau of Labor Statistics reported last week. In the month of August alone, consumer prices rose 0.4%, with much of that increase coming from higher gasoline prices.
Fed officials said they see inflation, as gauged by the personal consumption expenditures index, running at 3.7% by the end of the year. That is an increase from the board’s last projections in June, when they predicted inflation would fall to 3.6% by the end of 2026.
A major factor in the Fed’s decision-making is that the labor market remains healthy and not in need of easier monetary policy. The unemployment rate, at 4.1%, is low by historical standards, and job growth has been strong heading into the fall.
The officials projected that the unemployment rate would remain at 4.1% by the end of this year. In Wednesday’s statement, they said that employment growth has “kept pace with the workforce, and the unemployment rate has changed little.”
In terms of GDP, they predict 2.3% GDP growth this year, a slight increase from June, when board participants were projecting 2.2% growth in 2026.
Warsh has indicated repeatedly that he is focused on bringing inflation to heel, and some have even interpreted his tone as “hawkish.” In Fed lingo, “hawks” are central bankers who prefer tighter monetary policy, while “doves” are those who advocate looser money.
During recent hearings on Capitol Hill, Warsh emphasized the importance of getting inflation under control.
Trump addressed the rate hike in a post on Truth Social after the decision. Notably, the message didn’t mention Warsh, but rather that interest rates should be as low as 1%.
“LOWER THE INTEREST RATES FOR THE UNITED STATES OF AMERICA, AND FAST!” Trump wrote.
Outside of interest rate policy, Warsh has vowed to implement changes at the central bank. To that end, Warsh announced the creation of five task forces.
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The first task force will focus on Fed communications, the second on the Fed’s balance sheet, the third on the use and reliance on existing data sources, a fourth on productivity and jobs, and the final task force will examine the Fed’s inflation frameworks.
Outside members of the task forces range from academics to CEOs, and Warsh said that they will be supported by subject-matter specialists on the Fed’s staff.
