Fed raises interest rates for first time since 2023, Warsh cites inflation

The Federal Reserve raised its benchmark interest rate by a quarter percentage point on Wednesday, the first increase since July 2023, with Fed Chair Kevin Warsh saying inflation has been “too high … for too long.”

The decision, reached by a unanimous 12-0 vote of the Federal Open Market Committee, brings the federal funds rate to a new target range of 3.75%–4%. The Fed’s post-meeting statement pointed to persistent price pressures and a durable economy, declaring: “Inflation remains elevated. Today’s policy action will support a timelier return to the Committee’s 2 percent goal. The Committee will deliver price stability.”

At a news conference following the decision, Warsh said the Fed needed to be confident “that underlying inflation is moving to our objective clearly and at sufficient speed,” adding that the FOMC had determined “this standard has not been satisfied.” He pointed to three converging factors — a robust labor market, inflation still running above target, and ongoing conflict in the Middle East — as driving the committee’s unanimous vote.

The Dow Jones Industrial Average shed more than 400 points in afternoon trading following the Fed’s move. The S&P 500 and the tech-heavy Nasdaq Composite also slumped.

Updated economic projections released Wednesday showed FOMC participants nudged their inflation forecasts higher. The median projection for headline PCE inflation this year rose to 3.7% and core PCE to 3.4%, each up 0.1 percentage point from the June forecast, the Fed said. Officials do not expect inflation to return to the 2% target until 2029. The median unemployment rate projection for 2026 fell to 4.1%, down from 4.3% in June, while the GDP growth outlook rose to 2.3% from 2.2%.

Seventeen of 18 participants assessed inflation uncertainty as higher than historical norms, and 17 of 18 viewed inflation risks as weighted to the upside, according to the projections.

The committee also signaled that additional tightening remains possible. Sixteen of the 18 participants projected at least one more rate increase, with four seeing two additional hikes possible. No further increases are penciled in beyond 2026, with cuts indicated in 2028 and 2029.

The path to Wednesday’s hike reflected months of hawkish movement within the committee. At the July meeting, the FOMC held rates steady on a fractured 9-3 vote, with three regional bank presidents dissenting in favor of an immediate increase. Markets had priced in the move well in advance, with traders placing better than 90% odds on a quarter-point hike in the moments before the announcement, compared with roughly 33% a month prior.