Fed Raises Rates to 3.75%-4%, First Hike Since 2023

The Federal Reserve unanimously lifted its benchmark rate a quarter point to 3.75%-4%, defying President Trump's demands for cuts amid 3.4% inflation.

The Federal Open Market Committee voted unanimously to raise the federal funds target range by a quarter percentage point to 3.75%-4%, the first increase since 2023, according to TheGrio. Inflation ran at 3.4% in August, well above the Fed's 2% target, and the central bank now projects a return to that target no earlier than 2029. Detroit Free Press, citing Benzinga, reports the vote was 12-0 and that 16 of the 18 policymakers who submitted forecasts penciled in at least one more quarter-point increase before the end of 2026. Fed Chair Kevin Warsh said the central bank had removed "a dose of accommodation," and that "the plain fact is that inflation is too high and has been for too long."

The surprise is who backed the increase. Warsh was selected by Trump earlier this year to succeed Jerome Powell after a contentious relationship in which Trump repeatedly criticized Powell for not cutting rates aggressively enough. Instead, Warsh's Fed moved in the opposite direction of the White House's preference. Warsh, asked what message he had for the president, replied he had "nothing for you," according to Detroit Free Press.

Markets had positioned for a hawkish outcome. Detroit Free Press reports the 10-year Treasury yield touched 5.04% ahead of the decision, its highest level since 2007, as investors weighed whether the Fed could contain price pressures with oil above $100 a barrel. Officials revised their forecasts for inflation and growth higher and unemployment lower, per Detroit Free Press. Warsh defended the central bank's autonomy, saying "part of the independence of the Federal Reserve is we stay in our lane," and "independence is a two-way street," according to TheGrio.

For households, the hike raises costs on top of an energy squeeze. Credit cards, home equity lines of credit and other variable-rate debt respond quickly to changes in the federal funds rate, while auto loans and mortgages are influenced by broader rate conditions, TheGrio reports. Detroit Free Press notes the week's real disruption was fuel: national diesel averages topped $6.30 a gallon after a drone strike damaged pumping stations on Saudi Arabia's East-West pipeline, and Michigan set a diesel record at $6.54 with regular gas at about $4.76. J.B. Hunt warned its third-quarter profit would fall 5% to 10%, citing $25 million in added driver expenses and more than $10 million from fuel; its stock fell 13.3% Wednesday, the worst weekly mover in the S&P 500.

The Fed's next meeting is in late October, days before the midterm elections, per Detroit Free Press, with most officials expecting at least one more hike this year. Warsh is also pursuing an ambitious reform agenda, Time reports: five task forces launched within his first month covering communications, the balance sheet, the inflation framework, technology and AI, and data sources, with preliminary findings due this fall. He wants to end forward guidance, has stopped offering long-term policy projections, and has proposed cutting annual FOMC meetings from eight to six. He views the $6.7 trillion balance sheet as excessive, but any changes require approval from the board of governors or the full 19-member committee, and recent dissent frequency suggests not all members will welcome the agenda.