Fed raises rates a quarter point as Warsh breaks with Trump

The Federal Reserve raised its target interest rate by a quarter percentage point, to a range of 3.75% to 4%⁶. It was the first increase in three years⁴. The vote was unanimous^4,9. Chairman Kevin Warsh said the central bank raised rates by 25 basis points because inflation trends had “not meaningfully” improved¹. At the press conference that followed the decision, Warsh said inflation “is too high and has been for too long”².

Bloomberg reported that the Fed paired the increase with a signal of an additional hike later this year, steps aimed at containing inflation³. Newsquawk recorded the move as in line with what markets had expected⁹. Admiral Markets said faster balance-sheet reduction could tighten financial conditions alongside the rate increases and may affect longer-dated bonds, although the scale of that reduction was not set out⁵.

What the projections show

Projections released with the decision showed 12 of 18 officials expecting one more rate rise this year, while four expect two more⁶. The Fed raised its projection for GDP growth by year end to 2.3 per cent, up 0.1 percentage points⁷. The 2026 growth projection was lifted to 2.3 per cent from the 2.2 per cent pencilled in during June, and the unemployment rate projection was lowered to 4.1 per cent⁸.

Warsh reiterated his belief in the central bank’s inflation objective in remarks after the meeting⁷. The Financial Times described the outcome as the chair defying President Donald Trump’s calls for lower borrowing costs¹⁰.

The political reaction

Trump responded to the decision by saying rates should be lowered “AND FAST!”⁶. Writing on Truth Social, he said interest rates “should be 1%, or less, because we are the Best Credit in the World”⁶. He also said he had confidence in the Federal Reserve chair he appointed¹⁰. The BBC noted that rates were raised despite fierce opposition from the president, who had called for a cut⁴.

Peter Navarro, the White House senior counselor on trade and manufacturing, called the unanimous vote to increase rates a “monumental mistake”¹². Navarro separately said the Fed had made an “inexplicable” error in raising rates during an energy price surge¹¹. Bloomberg said the steps taken would test Warsh’s relationship with Trump³.

Three markers follow from the week. The first is whether the additional increase the Fed has flagged for this year arrives³. The second is the pace of balance-sheet reduction, which Admiral Markets flagged as a separate tightening channel affecting longer-dated bonds⁵. The third is whether White House pressure moves beyond public statements, after two senior advisers attacked the decision on the record^11,12.