Fed hikes interest rates for first time since 2023 in bid to tamp down inflation

The Federal Reserve on Wednesday issued its first interest-rate hike in three years, an effort to tamp down inflation that could raise borrowing costs for Americans just ahead of the midterm elections.

In a unanimous vote, the Fed raised rates by a quarter point to the 3.75% to 4% range – the first move in rates under Fed Chair Kevin Warsh, whom Trump hand-picked after lambasting predecessor Jerome Powell for years for not lowering interest rates fast enough.

Economists have warned that higher interest rates would raise borrowing costs on mortgages, auto loans and credit cards, hitting consumers who are already struggling with a tight housing market and sky-high gasoline prices.

Federal Reserve Chair Kevin Warsh (above) has taken a harsh stance against forward guidance. AFP via Getty Images

Dissent on the Fed board had deepened since Warsh took the helm earlier this year and called for a good “family fight” over policy decisions. Officials had been divided over the risks of raising interest rates too soon, which could stunt economic growth, or waiting too long, which could let inflation run out of control.

Warsh has taken a harsh stance against providing forward guidance, arguing it should be left up to the markets to react naturally to shifts in the economy – which has led investors and economists to read more closely into his comments.

Traders had largely been expecting a quarter-point hike, pricing in 93% odds just ahead of the meeting, according to CME FedWatch, after a key inflation gauge in August came in hotter than anticipated and energy prices surged.

It’s rare for the Fed to order standalone interest rate movements. More important than the Fed’s actual decision will be what Warsh says during the afternoon press conference, since investors will be hunting for any hint of the size and timing of future increases.

Most economists expected the Fed to raise interest rates twice this year, in September and again in December. The Fed’s next meeting is Oct. 28, and a second rate hike just before the November midterms could invite backlash from Trump.

Economists and investors are now looking for hints about the future path of interest rates. Anadolu via Getty Images

The president – who has argued the US should have the lowest interest rates in the world – has so far spoken positively of Warsh, even though the bank’s new leader held rates steady since taking the seat as chairman in May.

Trump called Powell “stupid” and a “numbskull” during his tenure. The Department of Justice also launched a criminal investigation into Powell over the Fed’s over-budget headquarters renovation, though the probe was later dropped.

This is a developing story. Please check back for updates.