Fed raises rates as Trump demands lowest global rates

The Federal Reserve raised interest rates Wednesday for the first time since 2023, saying inflation remains above its 2 percent goal. Reaction pending.

The decision moves Chair Kevin Warsh toward a policy clash with President Trump, who earlier said the US should have the lowest interest rates in the world. Trump also said the US could cut off trade with other countries if the central bank did not lower rates.

Warsh faces a 4.5 percent path

The Federal Open Market Committee said the move was aimed at returning inflation to its 2 percent target sooner. Officials cited persistent price pressure and global effects from the war in Iran.

Officials estimate at least one more increase could come before year-end, which would push the central bank’s rate up to 4.5 percent. Higher rates feed through to mortgages, credit cards, corporate debt and government financing costs, tightening conditions for households and companies after the first hike since 2023.

Data showed inflation-adjusted hourly earnings fell 0.1 percent in August from a year earlier and dropped 0.3 percent from the prior month. A University of Michigan survey showed consumer sentiment declined while inflation expectations increased, adding political pressure before voters go to the polls in November.

If inflation holds above target, another increase by December 31, 2026, would extend upward pressure on US yields, raise Warsh’s confrontation risk with the White House and keep bank, housing and credit-sensitive sectors under strain. If price data ease instead, the Fed would have more room to pause, limiting the drag on global risk assets and US borrowers.