Federal Reserve raises interest rates for first time in more than three years, defying Trump’s push for cuts

The Federal Reserve raised interest rates for the first time in more than three years on Wednesday, approving a unanimous quarter-point hike to a range of 3.75%-4% despite public pressure from President Donald Trump to cut rates.

Fed Chair Kevin Warsh said the move was necessary because “inflation is too high and has been for too long,” calling the decision “sober” and “responsible.” US inflation has exceeded the central bank’s 2% target for more than five years, Warsh noted, driven by surging fuel prices tied to the US-Israel war with Iran that has rippled through goods and services across the economy.

The hike is the first rate move in any direction since cuts in December 2025. The last increase came in July 2023.

Trump had demanded lower rates. He posted on social media: “LOWER THE INTEREST RATES FOR THE UNITED STATES OF AMERICA, AND FAST!” After the announcement, Trump told reporters he was “relying on Kevin” but described the board as “hostile” and “very political,” saying he had advised Warsh to vote with the board because “it’s just not going to matter.” Trump later claimed the board was “raising that only for political reasons, and that’s a raise against Trump.”

Political fallout and Democratic criticism

When Warsh was confirmed, Democratic lawmakers had labeled him Trump’s “sock puppet,” and many Fed watchers expected him to carry out the president’s persistent demands to slash rates. Trump had been sharply critical of Warsh’s predecessor, Jerome Powell, for not cutting rates. Asked about the message the hike sent to Trump, Warsh chuckled and said: “I have got nothing for you on a discussion with the president.”

Democrats on Capitol Hill condemned the increase. Senator Chuck Schumer, the top Democrat in the Senate, said: “This is going to make everything become more expensive.” He added: “This is because Donald Trump does not know how to manage the economy.”

Ripple effects for borrowers and global markets

Major US banks moved quickly. JP Morgan, KeyCorp, and BNY all raised their prime lending rate to 7% from 6.75% on Wednesday, affecting rates charged on credit cards and personal loans. Mortgage costs have climbed over the past year but remain below 2023 peaks, with a 30-year fixed deal averaging 6.76% and a 15-year deal at 6.09%, according to Freddie Mac. Many US homeowners hold fixed-rate mortgages and will not see monthly payments change, but those seeking new mortgages or refinancing face higher costs.

The majority of Warsh’s fellow policymakers said they believe rates would be hiked again before the end of this year to between 4-4.25%, according to the BBC. A small majority also said rates could rise further to 4.25-4.5% next year, before cuts begin in 2028 and 2029. The forecast suggested price rises will ease in the coming years, with inflation predicted to fall steadily to the Fed’s target by 2029.

The impact extends well beyond American shores. Higher US rates are putting upward pressure on the dollar and downward pressure on other currencies, Mark Zandi, chief economist at Moody’s Analytics, told CNBC. He said the tighter policy “does create stresses around the world,” particularly for economies tied closely to US rates. Japan is one market in focus, as a weaker yen could add to the case for further tightening by the Bank of Japan.

Navin Saigal, BlackRock’s head of global fixed income for Asia Pacific, said the market’s hawkish reading of the Fed meeting “may put some pressure on Asian currencies and bond markets in the near term.” Inflation conditions across Asia are divergent, according to BlackRock, with China and Thailand facing deflationary pressure while Australia and Japan remain above central-bank targets, meaning domestic conditions could outweigh pressure to mechanically follow the Fed.

Tai Hui, APAC chief market strategist at J.P. Morgan Asset Management, said developed-market central banks are “in sync with tightening monetary policy to address inflation concerns.” The European Central Bank raised rates by 25 basis points last week, and J.P. Morgan Asset Management expects the Bank of Japan to increase rates by a quarter point this week. For equity investors, prolonged higher rates raise the hurdle for stocks and other risk assets.

Liz Ann Sonders, chief investment strategist at Charles Schwab, said the 10-year Treasury’s move toward 5% was broadly justified by inflation, Fed policy expectations, and strong nominal economic growth. She said the economy and market can handle the shift if yields remain orderly, but a disorderly move would create a bigger problem for equities. Warsh declined to give his own forecast. But he said strength in the jobs market and the wider economy allowed the Fed to stay focused on stabilizing prices, and that those least well off had the most to gain from lower inflation.