The Federal Reserve opted to raise interest rates by 0.25 percent on Wednesday after weeks of speculation that an increase was on the horizon, after President Donald Trump had been calling for a cut to the rates for several months.
“The United States is so strong, we should be paying the lowest interest rate in the world regardless of their formulas. I know more about formulas than anybody, and we have the best credit in the world, and we make other countries rich. We could turn that off in two minutes,” Trump told reporters in Ireland over the weekend when asked about the possibility of a rate hike, especially in the wake of a better-than-expected jobs report and calmer rates of inflation compared to a few years ago.
The vote by the Federal Open Market Committee was unanimous, and released a statement saying that “inflation remains elevated.” The "target range" is now 3.75-4 percent.
The decision is the first movement in interest rates since last December when rates were cut by 0.25 percent. Rates have not been increased since July 2023.
“The Committee decided to raise the target range for the federal funds rate by 1/4 percentage point to 3-3/4 to 4 percent, in support of the Federal Reserve's dual mandate. The Committee is continuing its policy of maintaining ample reserves in the banking system,” the statement read.
“Economic activity is expanding at a solid pace. While uncertainty remains elevated owing, in part, to geopolitical developments, domestic spending has been resilient. Productivity growth is strong, and capital investment is robust. Job gains have kept pace with the workforce, and the unemployment rate has changed little,” the statement continued, adding that the “policy action will support a timelier return to the Committee's 2 percent goal” and “deliver price stability.”
The president was previously staunchly critical of former Federal Reserve Chair Jerome Powell for now backing a cut in interest rates, but Trump has been much more forgiving of current Federal Reserve Chair Kevin Warsh, who he selected once Powell’s chairmanship expired.
Trump has repeatedly said that Warsh has been swimming upstream from a political board, leading some to wonder if the president will change his tune after Wednesday’s decision. The prediction market Kalshi places it at a nearly 70 percent change that the president slams the chair before the end of the month.