Key facts
- The Federal Reserve raised its benchmark overnight interest rate by 0.25 percentage points to the 3.75%-4.00% range.
- Fed Chair Kevin Warsh stated inflation is the problem, despite acknowledging economic strengthening.
- 16 of 18 Fed policymakers anticipate at least one more rate hike by year-end.
- New projections indicate inflation will not return to the 2% target until 2029.
- The Fed's updated projections show the policy rate reaching 4.00%-4.25% by year-end.
The Federal Reserve raised its benchmark overnight interest rate by a quarter percentage point to the 3.75%-4.00% range on Wednesday, signaling further increases in borrowing costs. The decision, under new Fed Chair Kevin Warsh, was unanimous and reflects the central bank's view that the Trump administration has so far been unable to control inflation.
New economic projections released by the Fed indicate that 16 out of 18 policymakers expect at least one more quarter-percentage-point hike by the end of 2026. The policy rate is projected to rise to the 4.00%-4.25% range by the end of this year and remain at that level through 2027. The Fed's statement noted that the action will support a 'timelier return to the Committee's 2% goal.'
The central bank dropped a previous reference to "supply shocks" as the primary driver of current elevated inflation, suggesting broader price pressures are a concern. Fed Chair Warsh told reporters that the economy "has indeed strengthened" but called inflation "the problem." He declined to comment on President Donald Trump's reaction to the decision.
Policymakers revised their inflation projections upward to 3.7% for 2026, with the 2% target now not expected to be reached until 2029. Economic growth forecasts were slightly increased to 2.3%, and the unemployment rate is projected to end the year at 4.1%.