The Federal Reserve raised its benchmark interest rate Wednesday for the first time since 2023 in an effort to quell stubbornly high inflation, The Associated Press reported, and the central bank signaled another rate hike could occur later this year.
The quarter-point increase lifts the Fed’s key rate to about 3.9% and, over time, could result in higher borrowing costs for mortgages, auto loans and credit cards. In a set of quarterly projections, the Fed also signaled its rate-setting committee could raise it a second time to 4.1%.
The move comes as Americans are already struggling with high costs for groceries, gas and housing. Affordability has taken on a leading role in the upcoming midterm elections, just seven weeks away.
It adds another potentially dicey economic variable for Republicans and President Donald Trump, who blasted the decision Wednesday and accused the Fed’s top policymakers of trying to hurt him politically.
Chair Kevin Warsh, who was nominated by Trump, emphasized after the announcement that the economy has shown signs of gathering speed since the central bank decided to keep rates unchanged in late July. Inflation has also remained stubbornly above the Fed’s 2% target, and he noted there is little sign it is cooling.
“The plain fact is that inflation is too high and has been for too long,” Warsh said. “We must be confident that underlying inflation is moving to our objective clearly and at sufficient speed. Today the FOMC decided that this standard has not been satisfied,” he added, referring to the policy-setting Federal Open Market Committee, an arm of the Fed.
“Warsh’s tough talk around inflation in the post-meeting press conference suggested that he may be pushing for higher rates in meetings to come,” said Preston Caldwell, chief U.S. economist at Morningstar.
Warsh also said renewed combat between the U.S. and Iran, which has driven up gas prices, had convinced Fed officials to support rate hikes.
“There’s no hiding from hot spots around the world,” he said.
