Fed raises interest rates for first time in three years

Not even recent trade war threats from President Trump could convince the Federal Reserve to cut interest rates.MANHATTAN (CN) — Bucking pressure from the White House and temporarily quelling concerns about agency independence, the Federal Reserve hiked interest rates Wednesday to combat renewed inflation.The rate increase, which is first since July 2023 and approved by all 12 voting members, brings the federal funds interest rate to 3.75% to 4%.The accompanying statement put out by the Fed was shorter than usual as befitting the new Chair Kevin Warsh, who has tried to get the central bank to issue fewer communications. However, it noted that “inflation remains elevated” and the rate increase “will support a timelier return to the Committee’s 2% goal.”During a press conference following the decision, Warsh said “the plain fact is that inflation is too high and has been for too long.” However, his comments were brief and he refused to comment on pressures from the White House to slash rates, noting the Fed should “stay in our lane.”Warsh, who is just a few months into his job as Fed chair, also said the Fed was not influenced in its decision by the recent spike in bond yields or investors pricing in a rate increase. “I’ll observe market prices and see what they have to say, but today was our decision,” he told reporters.The Fed had kept interest rates steady at 5.25% to 5.5% for more than a year before a series of cuts starting in September 2024. The Fed then kept rates steady at 3.5% to 3.75% after its last cut in December 2025.This is the second Federal Open Market Committee meeting for Warsh. During Warsh’s first meeting in July, the Fed had kept the interest rate steady. However, reawakened inflation from the Iran conflict and rising Treasury bond yields forced Warsh’s hand.Warsh hinted at a potential rate hike during his closely watched speech at the annual Jackson Hole Symposium, when he said inflation was still the Fed’s major bugaboo.Many analysts and investors had worried the Fed had become politicized, with some experts publicly stating only an interest rate increase could help salvage the institution’s diminishing reputation.“Importantly, I’m not saying the Fed isn’t independent, but there is that perception in the markets and that’s contributing to the rise in yields,” Tom Essaye of the Sevens Report wrote in an investor’s note on Tuesday about the possibility of no rate hike.“I understand we’ve all been conditioned to think that ‘fewer rate hikes the better,’ but that’s not true when there’s an inflation or credibility issue with the Fed (which we have now),” Essaye added.Concerns over the Fed’s independence have rumbled around Wall Street since before Warsh was confirmed, as President Donald Trump had niggled former Chair Jerome Powell and Governor Lisa Cook over interest rates with personal attacks and federal investigations.Trump has not yet criticized Warsh directly, but after last month’s stupendous employment report the president threatened further trade wars in his calls for lower interest rates.“We should have the LOWEST RATE of any country in the World, like the ‘old days,’” Trump wrote in a social media post earlier this month. “LOWER THE RATE OR I’LL STOP TRADING WITH COUNTRIES WITH WHICH WE HAVE A DEFICIT.”Subscribe to our free newslettersOur weekly newsletter Closing Arguments offers the latest about ongoing trials, major litigation and rulings in courthouses around the U.S. and the world, while the monthly Under the Lights dishes the legal dirt from Hollywood, sports, Big Tech and the arts.Additional Reads