Fed Raises Interest Rates for the First Time Since 2023, Citing High Inflation

The Federal Reserve raised interest rates by a quarter percentage point on Wednesday, its first increase since 2023, citing inflation that has run well above its 2 percent target. The move lifts the benchmark rate to a range of 3.75 percent to 4 percent, its highest since December 2025, CBS News reported. The vote was unanimous, NBC News reported.

“The plain fact is that inflation is too high and has been for too long,” Fed Chair Kevin Warsh said at his news conference, according to NBC. “We must be confident that underlying inflation is moving to our objective, clearly and at sufficient speed,” he said, and “today, the FOMC decided that this standard has not been satisfied.” The Fed signaled one more increase before the end of the year; NBC reported that all but two policymakers forecast another hike, and CBS said about half expect rates to hold steady in 2027.

Consumer prices rose 3.4 percent in August from a year earlier, above average wage growth of 3.1 percent, NBC reported. The Iran war, which began Feb. 28, has disrupted oil supplies and pushed up fuel prices; NBC said gas prices are up more than 45 percent since the war began. Warsh said the Fed cannot affect individual prices such as oil or groceries but must ensure that relative price changes do not spread into broader effects. He said the economy “appears to be strengthening,” CBS reported.

The decision is a quick turn for a chair picked by President Donald Trump, who has long demanded lower rates. Julia Coronado, an economist at the University of Texas at Austin who runs MacroPolicy Perspectives, told PBS NewsHour that the decision followed from the data, with unemployment at 4.1 percent and inflation high, and called the Fed’s willingness to act a reassuring sign of its independence. Asked about a message for Trump, Warsh said he had “nothing for you on a discussion with the president,” NBC reported.

Trump responded in a late-Wednesday post. “LOWER THE INTEREST RATES FOR THE UNITED STATES OF AMERICA, AND FAST!” he wrote, adding that the benchmark rate “should be 1% or less” because the U.S. has “the Best Credit in the World.” NBC noted that Canada, Australia and Germany are rated higher by S&P Global. Warsh and economists such as Coronado have framed the move as a response to inflation and employment data.

Borrowing costs had already risen in anticipation of the move. Coronado said mortgage rates are much higher than before and auto loan rates are likely to follow, with the 10-year Treasury yield having passed 5 percent. CBS reported that banks are likely to raise credit card and other lending rates, though a single quarter-point increase may not greatly change costs. Heather Boushey of the University of Pennsylvania said it “will make it harder for families to borrow.”

Stocks fell. The Dow Jones Industrial Average dropped about 630 points, or roughly 1.2 percent, the S&P 500 lost nearly 0.4 percent and the Nasdaq was largely flat, NBC and CBS reported. Many economists had expected rate cuts this year before the reversal, CBS said. Coronado said most officials expect more hikes, likely at the December meeting, and that a change in that outlook would require signs of economic weakness or a clear easing of geopolitical tension.