The US Federal Reserve raised interest rates on Wednesday and warned of a possible further increase in borrowing costs in the coming months. The new head of the US central bank, Kevin Warsh, joined the unanimous decision, which effectively acknowledges the Trump administration's current inability to control inflation.
Despite President Donald Trump's promises to lower prices during his term, the combined impact of global import tariffs, the energy shock following the start of the war between the US and Iran with Israel, and capital expenditures related to the artificial intelligence boom maintains price pressure at a sufficiently high level. This prompted the Fed to raise its benchmark rate by a quarter of a percentage point, bringing it to the range of 3.75–4.00%.
New policy forecasts showed that 16 out of 18 decision-makers expect at least one more rate hike of a quarter of a percentage point by the end of the current year, while only two see stable rates from this point onward. Warsh apparently did not provide a rate forecast again.
This was the first policy adjustment under the new Fed chair, who took office at the end of May after being selected by Trump amid expectations of rate cuts. However, the Fed's new statement and economic forecasts, on the contrary, indicate that the central bank is opening the door to tightening monetary policy over the next year, forecasting a rate increase to the range of 4.00–4.25% by the end of this year and maintaining that level until the end of 2027.
The central bank stated in its policy statement after the two-day meeting that 'today's policy action will support a more timely achievement of the Committee's 2% target.' Although the statement provided no indications regarding future decisions, consistent with Warsh's preference, this decision likely removes doubts that the Fed chair would refrain from tightening policy out of respect for Trump—an issue that remained relevant in the early months of his tenure.
The statement excluded a previous reference linking current high inflation to 'supply shocks,' particularly in the energy sector, which is an acknowledgment of concerns among politicians, including Warsh, that price pressure is too widespread for a comfortable state.
Warsh has scheduled a press conference, starting at 2:30 PM EDT (18:30 GMT), to elaborate on the decision made.
