Key facts
- The Federal Reserve raised its benchmark interest rate by 0.25% to a range of 3.75%-4%.
- This is the first interest rate hike by the Fed in more than three years.
- Fed Chair Kevin Warsh cited high inflation as the reason for the rate increase.
- President Donald Trump expressed opposition to the rate hike, calling it 'too high' and 'political'.
- US inflation has been above the Fed's 2% target for over five years.
- Major US banks immediately raised their prime lending rate to 7%.
The Federal Reserve raised its benchmark interest rate by a quarter percentage point to a range of 3.75%-4%, the first increase in over three years, in an effort to combat persistently high inflation. Fed Chair Kevin Warsh stated the move was a "sober" and "responsible decision" to fight inflation that has been above the central bank's 2% target for more than five years.
President Donald Trump, who had previously called for rate cuts, expressed his opposition to the hike, describing the Fed board as "hostile" and "very political." Warsh, however, indicated he would not be swayed by the President's demands.
Major US banks, including JP Morgan, KeyCorp, and BNY, responded swiftly by raising their prime lending rate to 7% from 6.75%. This action will directly impact the cost of borrowing for consumers on credit cards and personal loans. While higher rates make borrowing more expensive, they can also lead to better returns on savings. The Fed's decision comes amid concerns about affordability for American voters, exacerbated by rising fuel prices linked to geopolitical tensions.
The last rate move by the Fed was a cut in December 2025, and the previous hike occurred in July 2023. The increase could lead to higher mortgage rates for homebuyers and increased costs for other forms of consumer debt.