US interest rates have risen for the first time in more than three years, with the Federal Reserve signalling that further increases could follow as it seeks to bring down persistent inflation.
The Fed unanimously raised its benchmark interest rate to 3.75 per cent to 4 per cent from 3.5 per cent to 3.75 per cent, despite strong opposition from US President Donald Trump, who had repeatedly called for rate cuts, reports BBC.
Fed Chair Kevin Warsh said the decision reflected the need to tackle persistent price pressures.
“Inflation is too high and has been for too long,” Warsh said, describing the rate increase as a “sober” and “responsible decision”.
Trump later expressed support for Warsh but criticised the Fed board, which votes on interest-rate decisions, calling it “hostile”.
Higher interest rates increase borrowing costs for people taking out loans, mortgages and credit cards, while potentially providing better returns for savers.
Speaking at a press conference on Wednesday after the decision, Warsh said the Fed leadership maintained “an attitude of optimism”, but acknowledged that inflation remained a concern.
Like many central banks, the Fed aims to keep inflation at 2 per cent or below. Warsh noted that US inflation had remained above that target “for more than five years”.
Persistent inflation has made affordability one of the biggest concerns for American voters. Fuel prices have surged in response to sharply higher wholesale oil prices since the start of the US-Israel war with Iran, pushing up the cost of a wide range of goods and services.
Warsh said the Fed could not directly control individual prices.
While the Fed “cannot affect any individual price – whether it be oil prices, whether it be food stuffs at the grocery store”, he said it could work to prevent price increases from spreading across the wider economy.
He also pointed to continued strength in the labour market and the broader economy, saying the central bank remained focused on price stability. Those on lower incomes, he added, stood to benefit most from lower inflation.
Central banks generally raise interest rates when inflation is high to discourage spending and encourage saving, with the aim of slowing price increases. However, higher rates can also prompt businesses to delay investment and weigh on economic growth.
What the higher rate means for Americans
When Warsh was confirmed, Democratic lawmakers had described him as Trump’s “sock puppet”, while many Fed watchers had expected him to follow Trump’s repeated calls for sharp rate cuts.
Trump had frequently criticised Warsh’s predecessor, Jerome Powell, over his reluctance to lower interest rates.
Asked on Wednesday what message the rate increase sent to Trump, Warsh chuckled before saying, “I have got nothing for you on a discussion with the president.”
Trump later told reporters, “I’m relying on Kevin [Warsh], but he’s got, you know, a very tough board”.
“And the, interest rates are too high. They’re not appropriate… I talked to Kevin and I said, ‘you might as well vote with the board because it’s not going to matter.’ The board is very hostile, they’re very political,” he added.
Earlier, Trump had written on social media: “LOWER THE INTEREST RATES FOR THE UNITED STATES OF AMERICA, AND FAST!”
Democrats on Capitol Hill said the increase would make borrowing more expensive and could push more Americans into debt.
“This is going to make everything become more expensive,” said Chuck Schumer, the top Democrat in the Senate. “This is because Donald Trump does not know how to manage the economy.”
The Fed’s decision marks its first rate move in either direction since rates were cut in December 2025. The last increase came in July 2023.
The latest hike could push up mortgage rates for prospective home buyers and increase borrowing costs on other forms of debt.
Major US banks JP Morgan, KeyCorp and BNY raised their prime lending rates on Wednesday to 7 per cent from 6.75 per cent, a move that will affect rates on credit cards and personal loans.
Mortgage costs have risen over the past year but remain below the peaks recorded in 2023. The average rate for a 30-year fixed mortgage is 6.76 per cent, while the rate for a 15-year fixed mortgage stands at 6.09 per cent, according to Freddie Mac.
Many US homeowners hold 30-year or 15-year fixed-rate mortgages, meaning changes in interest rates will not affect their monthly repayments. However, higher rates could increase costs for people seeking new mortgages or refinancing existing loans.
Warsh declined to give his own assessment of where interest rates were headed. However, most of his fellow policymakers said they expected another increase before the end of this year, taking rates to between 4 per cent and 4.25 per cent.
A small majority also projected that rates could rise further to between 4.25 per cent and 4.5 per cent next year before cuts begin in 2028 and 2029.
The projections indicate that inflation will ease over the coming years, with the measure used to track the cost of living expected to fall steadily towards the Fed’s 2 per cent target by 2029.
The US central bank is not alone in dealing with higher inflation since the Iran war. The European Central Bank raised rates last week, while the Bank of England is due to announce its own decision on Thursday.
