Fed raises rates as Warsh cites persistent inflation
Federal Reserve Chair Kevin Warsh said inflation remains too high, prompting the central bank to lift interest rates, while markets reacted with declines in major indices.
The Federal Reserve announced a hike in its benchmark interest rate, with Chair Kevin Warsh stating that inflation has been "too high and has been for too long" and that recent summer readings do not show a meaningful improvement in underlying trends. Warsh emphasized the Fed's focus on price stability, noting that the economy appears to be strengthening on the labor side, with low unemployment and rising work hours.
Following the announcement, U.S. stock indexes fell, with the S&P 500 down 0.9%, the Dow Jones Industrial Average dropping 850 points, and the Nasdaq slipping 0.5%. Treasury yields moved modestly, the two-year yield rising to 4.725% and the ten-year to 5.0%, while the dollar index rose 0.6%.
Republican Representative Jason Smith of Missouri criticized the rate increase, arguing that a growing economy and lower inflation should lead to lower rates. Democratic ranking member of the House Budget Committee Brendan Boyle attributed the hike to recent geopolitical tensions and policy decisions, suggesting they have pushed inflation higher.
Economists noted that the move was expected given persistent energy price pressures. Richard Carter of Quilter Cheviot described the decision as inevitable, and Stephen Brown of Capital Economics projected at least one more hike later in the year, with a possible third in early 2027.
Warsh declined to comment on any discussions with President Donald Trump, reaffirming the Fed's independence and its commitment to monetary policy discipline.