Key facts
- The Federal Reserve raised interest rates by 25 basis points to a range of 3.75% to 4%.
- This is the first rate hike by the Fed since July 2023.
- President Trump called for interest rates to be lowered to 1% or less.
- 12 of 18 Fed officials expect one more rate hike this year.
- The 10-year Treasury yield hit 5.012%.
The Federal Reserve on Wednesday raised its benchmark interest rate by a quarter percentage point, the first such increase in three years, in an effort to combat persistent inflation. The move, approved unanimously by the Federal Open Market Committee, brought the target range for the federal funds rate to 3.75% to 4.00%.
Federal Reserve Chair Kevin Warsh stated at a press conference that inflation remains too high and that the rate hike signals the Fed's seriousness in addressing the issue. He also defended the decision, arguing that stable prices benefit lower-income Americans the most.
President Trump publicly criticized the decision, writing on social media that interest rates in the U.S. should be 1% or less, given the country's credit standing. He urged the Fed to lower rates quickly.
Market reaction included a drop in the Dow Jones Industrial Average by 633 points, or 1.2%, and a 0.5% slump in the S&P 500. Long-term Treasury yields rose, with the 10-year yield surpassing 5% for the second time this week. Analysts noted that while the rate hike was expected, the Fed's dot plot, indicating at least one more hike this year, and the press conference's hawkish tone were more aggressive than anticipated. Some economists expressed concern that the Fed's reduced emphasis on forward guidance could lead to increased market volatility.