The Federal Reserve raised its key interest rate by a quarter percentage point to a target range of 3.75%-4% on Wednesday, marking its first rate increase since July 2023. The decision was unanimous, and the central bank's latest projections indicate another quarter-point increase is expected this year.
"The plain fact is that inflation is too high and has been for too long," said Fed Chair Kevin Warsh. Daniela Hathorn, senior market analyst at Capital.com, noted that while the 25 basis point hike was expected, the more significant signal was that policymakers do not believe the tightening cycle is finished. She added that the new projections show 16 of 18 officials expecting at least one further hike this year.
Hathorn observed that Warsh emphasized the need to prevent the energy shock from generating second- and third-round effects, even while acknowledging the Fed cannot directly influence oil prices. Stocks finished lower on Wednesday following the decision, and were mixed on Thursday after the sell-off.
President Donald Trump stated Wednesday that he still has confidence in Warsh, who was nominated by Trump as Fed chair. However, Trump said he wants the central bank to slash interest rates to 1% "or less." Warsh defended Wednesday's widely expected rate increase as appropriate.
Trump explained that he trusts Warsh, but noted that the Fed chair faces a challenging board composed of members appointed by previous administrations. Trump stated that he advised Warsh to align his vote with the board because the outcome would be determined by the group's decision regardless.