The Federal Reserve raised interest rates by 25 basis points as expected, with the updated dot plot indicating one more hike later this year, a move that puts pressure on the relationship between Fed Chair Kevin Warsh and President Trump.
"We have removed a degree of accommodation in order to better align financial and credit conditions with the central bank's ultimate objectives," Warsh stated during the post-decision press conference. This marks the first rate increase since July 2023.
Warsh reiterated his inflation concerns at the press conference, noting that annualized price increases for too many categories of goods and services have exceeded 3% over the past six and twelve months. He added that "the summer inflation data did not convince me that the underlying trend has improved materially."
The Federal Open Market Committee voted unanimously to raise the federal funds rate target range to 3.75%-4%. Following the announcement, short-term Treasury yields and the dollar advanced in tandem, with the 2-year yield erasing earlier losses to 4.71%, up more than 10 basis points from pre-announcement levels, while the 10-year yield remained lower at 4.97%.
New quarterly projections released Wednesday show officials' median estimate for rates at the end of 2026 rising to 4.1% from 3.8%, signaling growing support for additional tightening. Sixteen policymakers now expect at least one more rate increase this year, a sharp increase from just six in June. The 2027 median projection suggests no further hikes next year, though eight officials anticipate rates 25 basis points higher by the end of 2027. As in June, Warsh did not submit his own projections, leaving 18 of 19 officials providing forecasts.
Wednesday's move also disregards Trump's demands. The President has recently threatened to escalate trade tensions if the central bank fails to lower rates, reiterating over the weekend that US borrowing costs should be the lowest globally. White House spokesperson Kush Desai told Fox News that "the Fed's regrettable decision today is not strongly supported by economic data from this administration's perspective."
When asked what message he had for Trump, Warsh responded that he had nothing to disclose about their discussions. However, he emphasized that the US economy remains strong and reiterated that Fed officials do not view overall financial conditions as constraining growth. "The US economy appears to be strengthening. Given this resilience and potential for further improvement, I've heard optimism within the FOMC over the past two days."
Warsh's warnings last month that inflation had not slowed meaningfully opened the door to tightening, and investors became nearly certain of a rate hike following last Friday's inflation report. The post-meeting statement reiterated that inflation remains elevated while offering positive assessments of economic conditions, citing robust productivity growth, solid capital investment, and employment growth broadly in line with labor force expansion.
Officials reaffirmed their commitment to price stability, yet pushed back their projection for inflation returning to 2% by a year, with the median now pointing to 2029. Support for rate increases has been building within the Fed since July, when three regional Fed presidents dissented against holding rates steady—Dallas Fed President Lorie Logan, Cleveland Fed President Beth Hammack, and Minneapolis Fed President Neel Kashkari.