Fed Defies Trump and Hikes Rates for First Time in Over Three Years

A Historic and Politically Charged Decision

The Federal Reserve made a bold move on Wednesday, September 16, raising interest rates for the first time since 2023 — and doing so in direct defiance of President Donald Trump's repeated demands to lower them. The Fed approved its first interest rate hike in more than three years, with the Federal Open Market Committee voting 12-0 to increase its key interest rate by a quarter percentage point. The federal funds rate now ranges between 3.75% and 4%.

Fed Chair Kevin Warsh, whom Trump appointed in May to succeed Jerome Powell, said all 12 members of the Federal Open Market Committee — including himself — voted unanimously for the hike. The unanimous nature of the vote was striking, especially given that markets had been buzzing about the possibility of multiple dissents heading into the meeting.

Inflation That Just Won't Quit

The Fed approved the hike as part of an effort aimed at combating inflation brought on by spiraling oil prices and other factors. Warsh had said bluntly that "the responsibility for 65 months of sustained, elevated inflation sits squarely with the central bank" — and that is "where it belongs." Inflation has remained stubbornly above its target rate of 2% for the past five years.

Based on the Fed's preferred inflation measure, median inflation is projected to hit 3.7% this year and is not expected to return to the 2% target until 2029. That's a sobering timeline — and one that strongly suggests Wednesday's hike won't be the last. Updated projections point to the possibility of another rate increase this year.

Trump's Pressure Campaign Falls Flat

A rate hike counters Trump's steady campaign against the Fed to pressure it to significantly lower interest rates. The president had reportedly threatened economic consequences — including trade restrictions on countries with which the U.S. runs a deficit — if the Fed refused to cut. Warsh didn't blink. Warsh declined to discuss whether he planned to meet with Trump to explain the 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."

Democrats were quick to assign blame elsewhere. House Budget Committee Ranking Member Brendan Boyle argued that Trump's tariffs and the conflict with Iran have sent prices soaring, leading to the Fed's decision to raise rates.

What This Means for Your Wallet

Markets had largely seen this coming. Despite conflicting recent statements from policymakers, markets had priced in a better than 90% chance the FOMC would approve the increase. Persistently high inflation readings coupled with Warsh's statements from weeks ago had convinced Wall Street the hike was coming. Stocks still slipped on the news, with the S&P 500 falling 0.5%, the Dow dropping 1.2%, and the Nasdaq roughly flat. Long-term Treasury yields, which had already priced in the move, barely budged.

The rate increase will make it more expensive to borrow money to buy a car or carry a balance on a credit card. If you plan to put money into a new savings vehicle or take out a new loan in the coming months, you will soon start seeing changes in the rates on offer — and the same is true for any money tied to variable-rate products like a high-yield savings account or credit card. With another hike potentially on the horizon before year's end, Americans should brace for borrowing costs to stay elevated well into 2027.