Fed raises rates, Warsh signals further hikes as inflation stays high

The Federal Reserve increased its benchmark interest rate by 0.25 percentage point on Wednesday, marking the first hike since 2021. The modest rise is expected to make borrowing costs for credit cards and loans slightly higher, and it coincided with a 1.2% drop in the Dow Jones Industrial Average.

Chair Kevin Warsh used the post-meeting press conference to stress that inflation remains “too high, and has been for too long,” and suggested the central bank may need “higher rates for longer” to bring price growth back to its 2% target. Economists noted that Warsh’s remarks diverge from the Fed’s own forecasts, which projected only one additional hike in 2026 and none in 2027.

Warsh attributed part of the inflationary pressure to the ongoing war in Iran, which has disrupted oil supplies from the Persian Gulf and pushed crude prices above $100 a barrel. He said the Fed cannot control commodity prices directly, but it can act to prevent higher energy costs from spreading throughout the broader economy.

"We cannot affect any individual price, whether it be oil prices, whether it be foodstuffs at the grocery store. But what we can do and will do is ensure that any changes in relative prices don't broaden out," Warsh said.

Analysts said the hawkish tone bolsters Warsh’s credibility with investors, even as President Donald Trump publicly called for interest rates to stay at or below 1%. Some economists interpreted the chair’s stance as a signal that the Fed is prepared to act independently of political pressure to achieve its inflation mandate.

"Hiking was the right move, and it restores Fed credibility that the central bank will curb inflation no matter what the White House or anyone else says," Heather Long, chief economist at Navy Federal Credit Union, said in an email.