Fed hikes interest rates for first time in three years, drawing rebuke from Trump

The Federal Reserve on Wednesday hiked rates for the first time in three years, an effort to tamp down inflation that drew a muted rebuke from President Trump as the midterms approach.

In a unanimous vote, the Fed raised rates by a quarter point to the 3.75% to 4% range – the first move in rates under Warsh, whom Trump hand-picked after lambasting predecessor Jerome Powell for years for not lowering interest rates fast enough.

“The plain fact is that inflation is too high and has been for too long,” Warsh said at a press conference following the vote.

“Today’s action starts to show that we’re serious about this.”

Hours after the vote, Trump called for rates to be lowered, though he stopped short of attacking Warsh personally.

“Interest Rates in the United States should be 1%, or less, because we are the Best Credit in the World — BY FAR,” the president wrote on Truth Social.

“Lower the interest rates for the United States of America, and fast!” he added in all-caps.

Meanwhile, the fear for investors is that the Fed rarely issues standalone rate movements, and its dot plot shifted toward more rate hikes this year. As of Wednesday, 12 of 18 officials expect one more rate hike this year and four anticipate two more rate hikes. Just two predicted no more hikes.

Economists have warned that higher interest rates would raise borrowing costs on mortgages, auto loans and credit cards, hitting consumers who are already struggling with a tight housing market and sky-high gasoline prices.

At the press conference, Warsh seemingly tried to counter criticism that rate hikes could hurt lower-income Americans already struggling with the cost of living.

“Those who are least well off have the most to gain from a durable expansion, a solid labor market and stable prices,” he said.

Warsh declined to comment on the fact that his decision marked a departure from the president, who has argued the US should have the lowest interest rates in the world.

Trump has so far spoken positively of his appointee, even though he held rates steady in his first months after being sworn in as chair in May. Trump had yet to sound off on the rate hikes as of Wednesday afternoon.

The Dow Jones Industrial Average plunged 633 points, or 1.2%, by about 3:50 p.m. ET, while the S&P 500 slumped 0.5%. The Nasdaq traded roughly flat.

Long-term Treasury yields initially eased after the meeting, but continued to rise later in the afternoon, extending a rapid run-up over the past several weeks. The 10-year Treasury yield hit 5.012%, surpassing the 5% level for the second time this week.

“Given an evolving reaction function and less communication from the Fed, I worry this move neither tames inflation nor fully restores credibility,” Christian Hoffmann, head of fixed income at Thornburg Investment Management, wrote in a Wednesday note.

“The market had priced in a 90% expectation of a hike today, but the decision and the projections read as moderately more hawkish than expected.”

Dissent on the Fed board deepened after Warsh took the helm and called for a good “family fight” over policy decisions. Officials were divided over the risks of raising interest rates too soon, which could stunt economic growth, or waiting too long, which could let inflation run out of control.

Warsh has taken a harsh stance against providing forward guidance, arguing it should be left up to the markets to react naturally to shifts in the economy – which has led investors and economists to read more closely into his comments.

Alex Guiliano, chief investment officer at Resonate Wealth Partners, warned that the Fed’s new stance against forward guidance could lead to more stock market volatility ahead of future meetings.

After a key inflation gauge in August came in hotter than anticipated and energy prices surged, traders largely expected a quarter-point hike on Wednesday, pricing in 93% odds of the move, according to CME FedWatch.

Most economists expected the Fed to raise interest rates twice this year, this month and again in December. The Fed’s next meeting is Oct. 28, and a second rate hike just before the November midterms could invite backlash from Trump.

During his tenure, Powell received years of broadsides from the president, who called him “stupid” and a “numbskull.” The Department of Justice also launched a criminal investigation into Powell over the Fed’s over-budget headquarters renovation, though the probe was later dropped.