Fed raises rate for 1st time since 2023

The US Federal Reserve raised its benchmark interest rate on Wednesday by a quarter of a percentage point, the first rise since 2023, as the central bank's new Chairman Kevin Warsh led a decisive move to tackle stubborn inflation, defying President Donald Trump's repeated calls for a rate cut.

The decision by the Fed to raise the benchmark rate was backed by all 12 members of the Federal Open Market Committee and was widely anticipated by markets, Reuters reported. The quarter-point rise lifts the Fed's new benchmark rate to 3.75 to 4 percent.

Warsh was clear on why the decision had been made.

"The plain fact is that inflation is too high and has been for too long," he said.

Since taking the helm, Warsh said the Fed was committed to returning to its 2 percent target.

"Today's policy action will support a timelier return to the Committee's 2 percent goal," the central bank said in its policy statement.

But gradually, over time, it could lead to higher borrowing costs for mortgages, auto loans and credit cards.

This comes as Americans are already struggling with higher gas costs due to ongoing disruptions from the Iran conflict, which has contributed to pushing up average oil prices.

The fallout from the conflict with Iran has also threatened to spread through the economy and keep broader inflation stubbornly high, The Associated Press reported.

Policymakers also signaled on Wednesday in new forecasts that borrowing costs would rise further in the coming months.

New policy projections showed 16 of 18 policymakers anticipated at least one more quarter-percentage-point hike by the end of this year. Only two saw rates remaining stable from this point.

Warsh, who has opted to provide less forward guidance, did not submit a rate projection.

Instead, he called the rate hike a "sober", "serious" and "responsible" decision, but did not elaborate on any future moves.

"I'm not going to prejudge any future decisions we make," he said. "I committed to a discipline, a set of principles ... That's what we did today."

Warsh, who took over the central bank on May 22, was nominated by Trump — who had repeatedly called for a rate cut — and confirmed by the Senate.

Earlier this month, Trump threatened to prevent the United States from trading with countries with which it has a deficit, unless the Fed lowered interest rates.

The new chairman has vowed to tame inflation.

However, the rate hike was a surprising U-turn for Warsh, who said last year before his appointment that the Fed could reduce its key rate, echoing the president's call for lower borrowing costs, the AP reported.

At a news conference after the decision, Warsh refused to discuss with reporters what message he had sent to Trump with the rate hike.

"I've got nothing for you on a discussion with the president," he said.

Trump posted comments about interest rates in the immediate hours following the Fed's decision. He did not outwardly criticize Warsh.

US interest rates should be 1 percent or less "because we are the best credit in the world — by far", he said in a post on social media.

"If we stopped trading with every country that we have a deficit with, which is most of them, we would make, at least, $1.5 trillion a year. The word 'deficit' is nothing more than a fancy word for loss. We are 'carrying' almost every country in the world, and that cannot go on any longer," he added.

Warsh said, "Our decision comes at a time when the American economy appears to be strengthening.

"New hiring, private sector earnings, business capital investment — each of these markers has improved in recent months and is pointing in a good direction."

He said the labor side of the Fed's remit is in "good shape", but that inflation is running too high.

belindarobinson@chinadailyusa.com