The Federal Reserve raised interest rates by a quarter percentage point and penciled in an additional hike later this year, steps aimed at containing inflation that will test Chairman Kevin Warsh’s relationship with President Donald Trump.

“We removed a dose of accommodation so that financial and credit conditions would be more consistent with our ultimate objectives,” Warsh said during a press conference following the decision. “Today’s action starts to show we’re serious about this, and we will deliver on the price stability objective.”

The Federal Open Market Committee voted unanimously to increase the benchmark federal funds rate to a range of 3.75% to 4% on Wednesday. It was the U.S. central bank’s first rate increase since July 2023.

Trump said on social media following the move that U.S. interest rates should be at 1% or lower, but stopped short of calling out Warsh.

“We are ‘carrying’ almost every country in the World, and that cannot go on any longer,” Trump said. “LOWER THE INTEREST RATES FOR THE UNITED STATES OF AMERICA, AND FAST!”

In his remarks to reporters, Warsh restated his concerns over inflation, saying too many categories of products and services were showing annualized price gains above 3% on a 6- and 12-month basis.

“This summer’s inflation readings do not tell me that underlying trends have meaningfully improved,” he said.

His comment on removing a “dose of accommodation” also drew attention from Fed watchers.

“That’s hawkish. If the chair thinks policy is accommodative, then you’ve got more work to do,” said Michael Gapen, chief U.S. economist for Morgan Stanley.

Two-year Treasury yields — the most sensitive to the Fed’s policy — erased an earlier decline to trade at 4.73%, more than 12 basis points higher than they were before the announcement. Yields on the 10-year note rose during Warsh’s press conference, also reversing an earlier decline, eventually moving above 5%.

“Clearly, the Fed is more concerned about inflation at the moment,” said Oscar Muñoz, chief macro strategist at TD Securities. “That’s why they hiked today, and it seems like there are more hikes in the pipeline.”

Rate projections

In a new set of rate projections released Wednesday, Fed officials’ median outlook for interest rates at the end of 2026 rose to 4.1% from 3.8%, signaling growing support for a series of rate hikes.

Sixteen officials projected at least one additional increase this year, up from six in June who saw at least two total increases in 2026. The median projection for 2027 pointed to no additional rate hikes next year. However, eight policymakers favored moving another quarter point higher by the end of 2027 compared to where rates stand now.

As in June, when Warsh declined to submit his own forecasts, only 18 of 19 officials provided rate projections for 2026 and 2027.

The rate increase comes after the Bureau of Labor Statistics reported last week that core inflation rose at a hotter-than-expected pace in August. That added to growing concern that inflationary pressures may be broadening beyond the temporary effect of tariffs and the Iran war’s impact on energy prices.

With their decision to raise rates, policymakers also defied Trump, who recently threatened to escalate his trade wars if the Fed doesn’t lower interest rates.

When Warsh was asked by a reporter on Wednesday what his message was to Trump, he responded: “I’ve got nothing for you on a discussion with the president.”

Warsh emphasized, however, how well the U.S. economy is performing and repeated that officials don’t see broad financial conditions as restraining growth.

“The American economy appears to be strengthening,” he said. “Given that resilience and the potential for even greater performance, an attitude of optimism is exactly what I heard inside the FOMC these last two days.”

Warsh warning

Warsh warned last month that inflation was not meaningfully slowing, opening the door to policy tightening. Friday’s inflation report prompted investors to view a hike as a near certainty.

In the committee’s post-meeting statement Wednesday, officials again characterized inflation as elevated, yet also described the economy in positive terms.

“Productivity growth is strong, and capital investment is robust,” officials said. “Job gains have kept pace with the workforce, and the unemployment rate has changed little.”

Officials repeated a promise to deliver on price stability. But even with the rate hike, they pushed out by one year their expectation for when inflation would return to 2%. The median forecast now sees it reaching that level in 2029.

Support for higher rates has been slowly building within the Fed all year. At their July meeting, officials left rates unchanged, but three regional Fed bank presidents — Lorie Logan of Dallas, Cleveland’s Beth Hammack and Minneapolis’ Neel Kashkari — dissented in favor of a rate hike.

Minutes from that gathering showed many officials indicated policy tightening would be necessary if inflation didn’t decline.

(With assistance from María Paula Mijares Torres, Vince Golle and Ye Xie.)

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