The US Federal Reserve has raised interest rates for the first time in more than three years, citing the need to address persistent inflation.
The Fed unanimously increased its benchmark interest rate to between 3.75% and 4%, from the previous range of 3.5% to 3.75%, despite President Donald Trump’s calls for a reduction.
Fed Chair Kevin Warsh said the decision was necessary because inflation remained too high and had persisted for too long. He described the move as a “sober” and “responsible decision.”
Following the announcement, Trump expressed support for Warsh but criticized the Federal Reserve’s policy-making board, describing it as “hostile” and “political.”
Higher interest rates increase borrowing costs for loans, mortgages and credit cards, while potentially providing better returns on savings. They are generally used to discourage spending and encourage saving in an effort to slow price increases.
Warsh said US inflation had remained above the Fed’s 2% target for more than five years. He acknowledged that the central bank could not directly control individual prices, such as oil or food, but could limit the spread of inflation across the wider economy.
The rate increase is the first change in either direction since December 2025 and the first hike since July 2023.
Major US banks, including JPMorgan, KeyCorp and BNY, raised their prime lending rate from 6.75% to 7%, potentially increasing the cost of credit cards and personal loans.
The decision could also affect mortgage rates for new buyers and those seeking to refinance. However, homeowners with fixed-rate mortgages would generally not see changes to their monthly repayments.
Most Fed policymakers expect another rate increase before the end of the year, potentially taking rates to between 4% and 4.25%. Some also anticipate further increases next year before rate cuts begin in 2028 or 2029.
The Fed expects inflation to gradually ease toward its 2% target by 2029.
