Closing summary
The US Federal Reserve voted unanimously to raise interest rates for the first time since 2023, in a decision that marks chair Kevin Warsh’s first major step to try to tamp down inflation. The Fed’s open market committee voted 12-0 to raise its benchmark interest rate by a quarter-percentage point to a new range of 3.75% to 4%, potentially setting Warsh on a collision course with Donald Trump, who has repeatedly pressed for rates to be cut and nominated Warsh with that expectation.
Warsh, who assumed the role in May, said the Fed had concluded that “the plain fact is that inflation is too high and has been for too long”. Although Warsh acknowledged changing geopolitics, he avoided calling out the US-Israel war against Iran by name. He also declined to provide an indication of whether or not this hike will be the first in a series of increases, as has typically happened in the past.
Warsh also declined to comment on Trump’s demands and threats and how he might react, asserting that Fed’s independence means: “We stay in our lane.” We’ve yet to hear from Donald Trump on what he makes of the news, but no doubt we will soon.
In the meantime, here’s our report:
Major US indexes turned lower as Kevin Warsh’s comments came to an end earlier, with the S&P 500 down 0.9%, the Dow tumbling by 850 points and the Nasdaq down 0.5%.
Meanwhile, US treasury securities were mixed. The 2-year yield, most sensitive to expectations for future Fed policy, rose six basis points to 4.725% after earlier declining. The 10-year yield was up one basis point at 5% and the 30-year yield was down 1.6 basis points at 5.347%.
And the US dollar index rose 0.6% to 100.25.
Business editor
Donald Trump has still yet to speak but at least one Republican has come out against the Fed’s decision.
“With the economy growing, businesses hiring and investing, and inflation at less than half the rate American families endured under President Biden, interest rates should be coming down, not going up,” the representative Jason Smith of Missouri, who leads the top tax committee in the House, said in a statement.
“American workers, families, and small businesses have waited long enough for relief from high borrowing costs that make it harder to buy a home, start a business, or get ahead. This is the wrong decision for working families that will only prolong the high costs they are paying.”
And further to his statement, which we brought you earlier, Democrat Brendan Boyle, the ranking member on the House budget committee, says on X:
Today’s decision to raise interest rates was “inevitable”, says Richard Carter, head of fixed interest research at Quilter Cheviot, “with energy prices taking a renewed step higher and inflation remaining persistently well above target”.
He added:
In a note to investors, Stephen Brown, chief North America economist at Capital Economics, said:
“I love the inflation,” Donald Trump infamously said back in June, arguing that price rises were just temporary and would drop sharply once his war on Iran was concluded.
But the war continues and so do high gas prices. Warsh earlier made the case that prices are too high: “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 a meaningfully improved.”
Warsh stresses that the central bank’s decision to raise interest rates was not influenced by financial markets.
'We stay in our lane,' Warsh says of the Fed's independence
Taking questions from reporters, Warsh has declined to comment on Donald Trump’s repeated calls for rates to be cut, not raised.
“I’ve got nothing for you on a discussion with the president,” he replied to one reporter.
Later, when another reporter brought up Trump’s threats to cut off trade with certain countries, and asked Warsh when he last spoke to the US president, if he anticipates a post-decision meeting and if this is another test to the Fed’s independence, he reiterated:
Warsh adds of the rate hike: “Those who are least well off have the most to gain from a durable expansion, a solid labor market and stable prices.”
“At our July meeting, we all agreed that inflation remained too high, and we expressed our joint readiness to act as circumstances might require,” Warsh says.
“And a good majority of my colleagues and I thought the wiser course then would be to weight new information in the inter-meeting period.
“In the last month in Wyoming, I expressed my commitment to a monetary policy discipline, not to a decision. I defined the standard for action. We must be confident that underlying inflation is moving to our objective, clearly and at sufficient speed.
“Today the FOMC decide that this standard has not been satisfied.”
'The plain fact is that inflation is too high, and has been for too long,' says Warsh
Yet, for more than five years, inflation has been running above target, Warsh goes on, so the Fed’s predominant focus is on the price stability side of its mandate.
He adds: “This summer’s inflation readings do not tell me that underlying trends have meaningfully improved.”
“One basic sign of strength is the state of America’s labour markets,” Warsh says, highlighting the low unemployment rate, rising weekly hours and the relatively low rate at which people are filing for unemployment benefits.
“Our decision comes at a time when the American economy appears to be strengthening,” Warsh says.
Citing consumer spending, capital investment and other indicators, he adds:
Fed chair Kevin Warsh gives press conference following decision to raise rates
Kevin Warsh is speaking now.
He starts off by reiterating what the committee released in its press statement. I’ll bring you all the key lines here.
Democratic congressman Brendan Boyle, who is the ranking member of the House budget committee, released this statement reacting to the news:
