Donald Trump lashed out at the Federal Reserve after it defied his persistent calls for lower interest rates and instead raised its key interest rate on Wednesday for the first time since 2023, in an attempt to quell elevated inflation.
“Interest Rates in the United States should be 1%, or less, because we are the Best Credit in the World—BY FAR,” Trump posted on Truth Social. “LOWER THE INTEREST RATES FOR THE UNITED STATES OF AMERICA, AND FAST!”
The Fed’s newly minted chair, Kevin Warsh, whom Trump appointed in May to succeed Jerome Powell, said Wednesday that all 12 members of the Federal Open Market Committee, including him, voted unanimously for the 0.25 percentage point hike. The federal funds rate now ranges between 3.75 to 4%.
A rate hike counters Trump’s steady campaign last year against Powell, whom he appointed in 2018, to pressure him to significantly lower interest rates. For months, the President attacked and insulted Powell, and the Trump Administration went as far as opening a criminal investigation over the Fed executive’s alleged mismanagement of the central bank’s $2.5-billion renovation project. Powell’s chair term ended in May, though he remains on the Board of Governors.
Warsh’s appointment was expected to end Trump’s feuding with the Federal Reserve, but he defended the decision to buck Trump on borrowing costs. “The decision we made today was a sober decision, serious decision, responsible decision, one that we have been preparing for and thinking about in my 110 or 120 days here,” Warsh said, adding: “The plain fact is that inflation is too high and has been for too long.”
Fed members are also projecting another 0.25-point increase later in the year, which would stay unchanged through 2027.
While Trump has previously said that he would support Warsh’s independence, his message on Truth Social showed his disappointment over the decision to increase the interest rate, mirroring statements he made when Powell was Fed Chair. He also alluded to threats he previously made of cutting off a big chunk of U.S. trade if interest rates weren’t reduced, despite the two being largely unrelated.
“Our Country is BOOMING with new Investment!” he wrote on Truth Social. “If we stopped Trading with every country that we have a Deficit with, which is most of them, we would make, at least, 1.5 Trillion Dollars a year. The word ‘Deficit’ is nothing more than a fancy word for LOSS. We are ‘carrying’ almost every country in the World, and that cannot go on any longer.”
Speaking to reporters Wednesday, Trump maintained that he still had confidence in Warsh as Fed Chair, and said the Fed’s board members are the ones acting “hostile” and “political” with the rate hike. “I’m relying on Kevin, but he’s got, you know, a very tough board,” the President said. “I talked to Kevin, and I said, ‘You might as well vote with the board cause it’s not going to matter.’”
Warsh declined to discuss anything when asked if he planned to meet with Trump to explain the Fed's decision. “Part of the independence of the Federal Reserve is we stay in our lane,” he said. “Independence is a two-way street. We let people that do trade policy and fiscal policy stay in their lane too.”
Why the Fed had to increase rates
The Fed’s goal is to maintain economic conditions that maximize employment and achieve stable prices. Inflation—or the rate at which consumer prices rise—soared particularly during the COVID-19 pandemic, although the following years have seen inflation draw closer to the target annual average of 2%.
But Trump’s White House return has threatened to bring an increase to the cost of consumer goods as he tried to implement sweeping tariff regimes against many of the U.S.’s trading partners.
In February, when the U.S. and Israel jointly launched a war with Iran, inflation rose even more as a result of higher energy prices stemming from supply disruptions in the Strait of Hormuz and the Red Sea. In August, inflation reached a year-on-year rate of 3.4%, compared with 2.4% in February. The Congressional Budget Office in a recent report said that it projects the Iran war to add about 0.5 percentage points to inflation in the price index for personal consumption expenditures in the first quarter of next year.
Price increases have repeatedly plagued U.S. consumers, especially at the pump, where the national average price for a gallon of gasoline has hit $4.43 up from $3.20 a year ago, data from the American Automobile Association shows.
A Fed statement issued along with Warsh’s announcement said that, in line with delivering price stability, the rate hike would “support a timelier return” to the 2% inflation goal. Based on the Fed’s preferred inflation measure, median inflation will hit 3.7% this year and is projected not to return to the 2% target until 2029.
What higher Fed rates mean for everyday Americans
Many consumer products such as credit cards and loans are pegged to the prime rate—which functions as a baseline for banks to set rates and adjusts relative to Fed rates. This means an increase is expected to make borrowing money for homes, autos, and other sizable purchases more expensive.
While the rate hike could present an opportunity for savers whose interests earned in deposits and savings are likely to go up, it’s a blow for Americans who are consistently using credit cards who resort to credit cards to cope with increasing cost of living in the U.S. According to the New York Fed, total credit card balances stand at $1.26 trillion in the second quarter of the year.
Warsh, however, argues that the rate hike particularly benefits lower-income Americans, saying: “The least well off are the ones that have the most to gain from stable prices. The decision we made today was the right decision to deliver on the remit that Congress gave us to ensure stable prices.”
Matt Schulz, chief consumer finance analyst at online loan marketplace LendingTree, told the Associated Press that while a single 0.25-point increase will not have a huge impact now, it could be more felt if these rate hikes were compounded. “Most Americans are generally doing OK,’' Schulz told the AP. “But it wouldn’t take a whole lot for them to not be doing OK. People’s financial margin for error is generally pretty small, and just the rising cost of most everything just squeezes them more and more.’'
The interest rate hike comes less than two months ahead of midterm elections where Republicans will have to defend their slim majorities in Congress. Trump and the GOP have increasingly faced criticism for the rising costs of living since the war with Iran began.
