The Federal Reserve has raised US interest rates to a range of 3.75%-4%, up from 3.5%-3.75%, in its first rate increase in more than three years. The unanimous decision came despite President Donald Trump’s public calls for borrowing costs to be reduced.
Fed Chair Kevin Warsh said the increase was necessary because inflation was “too high and has been for too long”. He described the decision as “sober” and “responsible”, according to the BBC, and said the central bank was focused on preventing price rises from spreading across the economy.
The Federal Reserve aims to keep inflation at 2% or below. Warsh said US inflation had remained above that level for more than five years, although he also pointed to a strong jobs market and wider economic conditions as reasons for prioritising price stability.
Higher interest rates raise the cost of borrowing for mortgages, loans and credit cards, while potentially improving returns on savings. Major banks including JP Morgan, KeyCorp and BNY raised their prime lending rates from 6.75% to 7% after the announcement, according to the BBC. The increase is expected to add to borrowing costs for people buying homes or refinancing, although many existing homeowners have fixed-rate mortgages.
Warsh said the Fed could not directly change the price of oil or food. The BBC reported that rising fuel costs had added to pressure on household budgets, while the central bank’s rate decision was intended to limit broader inflationary effects rather than reverse individual price increases.
Trump said rates should be 1% or lower and repeated his demand for a rapid cut after the announcement. The Federal Reserve is independent of the government, and Warsh said that independence required it to “stay in our lane”. Most Fed policymakers expect another increase before the end of the year, with some forecasting further rises next year before cuts begin in 2028 or 2029.