WASHINGTON, Sept 17 – The U.S. Federal Reserve on Wednesday raised its benchmark interest rate for the first time since July 2023 and suggested further possible steps this year to contain resurgent inflation caused by the war in Iran.
The 0.25 percentage-point hike brings the federal funds rate, which commercial banks charge each other for overnight loans, to a new target range of 3.75 to 4 percent.
The central bank’s rate-setting Federal Open Market Committee unanimously decided on the move, with 12 of the 18 policymakers who submitted new projections implying another quarter-point hike by the end of this year.
Meanwhile, four among the group penciled in two more hikes, and two projected the rate will stay at the new level. Their projections indicated a course reversal for the Fed, which is no longer on the rate-cut trajectory that continued through the end of last year.
Since December, the Fed had maintained the rate’s target range at 3.50 to 3.75 percent.
“Economic activity is expanding at a solid pace. While uncertainty remains elevated owing, in part, to geopolitical developments, domestic spending has been resilient,” the committee said in a statement after the conclusion of its two-day policy meeting.
“Inflation remains elevated. Today’s policy action will support a timelier return” to the Fed’s 2 percent inflation target, the committee added.
Inflation in the United States has been above the target for more than five years. The FOMC will have two more opportunities to take action this year, as it has upcoming monetary policy meetings in October and December.
The war against Iran that President Donald Trump, along with Israel, started in late February has pushed up energy and other consumer prices.
The Fed’s latest decision could put its chief Kevin Warsh on a collision course with Trump, who has consistently demanded lower interest rates in the hope of encouraging more spending and stimulating economic growth.
An interest rate hike increases borrowing costs for consumers, making mortgages, auto loans and credit cards more expensive. The move comes at a time when Trump’s approval ratings are already sagging ahead of November’s midterm elections.
In a press conference following the Fed’s announcement, Warsh, who was handpicked by Trump to lead the central bank, said the focus is now on the price stability side of its dual mandate, rather than promoting maximum employment.
“The plain fact is that inflation is too high and has been for too long. This summer’s inflation readings do not tell me that underlying trends have meaningfully improved,” Warsh said. “Price stability is foundational to economic growth, and I think we took an important step today to deliver it.”
A few hours after the policy meeting, Trump urged the Fed to quickly lower U.S. interest rates. He wrote on social media that rates should be 1 percent or lower, “because we are the Best Credit in the World — BY FAR. Our Country is BOOMING with new Investment!”
The meeting was the third chaired by Warsh since he took over in May from Jerome Powell, whom Trump relentlessly pressured to cut interest rates.
The Fed’s decision to raise the rate followed data from the Labor Department on Friday showing that the consumer price index rose 3.4 percent in August compared with a year ago.
The key inflation reading was unchanged from July. But on a month-by-month basis, the index climbed 0.4 percent, up from a 0.1 percent increase in July, driven largely by higher gasoline prices.
On Wednesday, the Fed released updated quarterly economic projections by its policymakers. For this year, their median inflation estimate was 3.7 percent, a slight increase from June’s figure of 3.6 percent, while the projected unemployment rate fell to 4.1 percent from 4.3 percent.
U.S. gross domestic product is expected to grow 2.3 percent in 2026 from a year earlier, up from the previous forecast of 2.2 percent.
