The Federal Reserve raises rates for the first time since 2023
A unanimous committee lifted the benchmark by a quarter point to 3.75 to 4 per cent, with energy prices pushing inflation up. President Trump called for rates to be cut instead.
The Federal Reserve raised its benchmark interest rate on Wednesday by a quarter of a percentage point, to a range of 3.75 to 4 per cent. It is the first increase since July 2023.
The open market committee voted 12-0. That unanimity is the striking part: at the previous meeting in late July the committee split 9-3 in favour of holding rates, the widest dissent on a policy decision in ten years.
The case the chair made
Kevin Warsh, the Fed chair, put the decision on inflation rather than on growth. "The plain fact is that inflation is too high and has been for too long," he said, adding that the summer's readings did not show him any meaningful improvement in the underlying trend.
The committee's statement said economic activity is expanding at a solid pace and that inflation remains elevated. Warsh's own framing was that the decision comes at a time when the American economy appears to be strengthening.
Personal consumption expenditures inflation was expected to run at 3.6 per cent in August, against the Fed's 2 per cent target, with the core measure near 3.2 per cent and unemployment around 4.1 per cent.
The war in the numbers
Warsh did not name the conflict between the United States and Iran, but he acknowledged what it has done to the outlook. "There's no hiding from hotspots around the world," he said, and the Fed's judgement about which geopolitical outcomes are likely has changed.
The effect shows up in energy. Brent crude is at its highest in months. Petrol in the United States costs about a dollar a gallon more than a year ago, and diesel recently reached an all-time high of $6.31 a gallon.
It also shows in the bond market, where concern about inflation has driven the yield on the ten-year Treasury note to a nineteen-year high this week. Warsh called that "a complicated set of things affecting the most important asset anywhere in the world, the 10-year Treasury", and said the market sometimes tries to prejudge the committee's decisions.
The response from the White House
Trump posted on Truth Social after the announcement that interest rates should be 1 per cent or less, and returned to the trade deficit, saying the United States would make at least $1.5 trillion a year if it stopped trading with countries it runs a deficit with. "LOWER THE INTEREST RATES FOR THE UNITED STATES OF AMERICA, AND FAST!" he wrote.
Warsh declined to say how the president might react, and described the independence of the central bank as a two-way street. "We will let people that do trade policy and fiscal policy stay in their lane," he said. The White House did not immediately respond to a request for comment.
Where the committee thinks it is going
The projections point to one more quarter-point increase before the end of the year, with four officials putting the benchmark at 4.25 to 4.5 per cent by December. Officials do not expect inflation to reach the 2 per cent target until roughly 2029.
Markets closed lower. The Dow Jones Industrial Average closed down 1.3 per cent, the S&P 500 about 0.5 per cent lower and the Nasdaq Composite 0.08 per cent lower.
Two fund managers read the unanimity differently from each other. Kay Haigh of Goldman Sachs said the "Fed has signaled it does not at this stage envisage an aggressive tightening cycle." Seema Shah of Principal Asset Management said the vote "shows that rising energy prices and stubborn inflation have brought even the doves on board."
For households the sequence matters more than the size. Inflation reached a generational high of 9.1 per cent in June 2022, the Fed raised rates eleven times across 2022 and 2023 to a range of 5.25 to 5.5 per cent, and then cut through 2024 and 2025. Real hourly earnings fell 0.1 per cent over the year to August and 0.3 per cent on the month.
Sources
- The Guardian — Gaya Gupta, 16 Sep 2026 22.01 BST. The unanimous quarter-point rise to 3.75-4 per cent and first increase since July 2023; Warsh on inflation being too high and on the summer readings; the Truth Social post and the lower-the-interest-rates quotation; the hotspots quotation and the two-way-street and stay-in-their-lane remarks; the White House not responding; four officials projecting 4.25-4.5 per cent by year end and inflation at target around 2029; the 9-3 July vote; Brent, the dollar-a-gallon petrol figure and the $6.31 diesel high; the 19-year high on the ten-year Treasury; the 2022 inflation peak of 9.1 per cent, the eleven increases and the 5.25-5.5 per cent range; real hourly earnings down 0.1 per cent on the year and 0.3 per cent on the month.
- Fox Business — Eric Revell, 16 Sep 2026. The 12-0 vote and the move from 3.5-3.75 to 3.75-4 per cent; the FOMC statement on activity expanding at a solid pace and inflation remaining elevated; Warsh on the economy strengthening, on the ten-year Treasury and on the market prejudging outcomes; PCE at 3.6 per cent in August, core near 3.2 per cent, unemployment about 4.1 per cent and a median projection of one more increase this year; the S&P 500, Dow and Nasdaq moves; Kay Haigh of Goldman Sachs and Seema Shah of Principal Asset Management quoted.
