US interest rates raised for first time in three years
US interest rates have been raised for the first time in more than three years and could be increased further in a bid to slow rising prices.
Rates were hiked to 3.75%-4% from 3.5%-3.75% by the Federal Reserve in a unanimous decision despite fierce opposition from President Donald Trump, who had called for rates to be cut.
Fed Chair Kevin Warsh said the move was because "inflation is too high and has been for too long", adding that it was a "sober" and "responsible decision".
However, Trump said rates "should be 1%, or less, because we are the Best Credit in the World - BY FAR".
Higher interest rates make borrowing more expensive for people wanting to secure loans, mortgages, and credit cards, but can lead to better returns on savings.
Warsh said during a press conference on Wednesday following the decision that, while there was "an attitude of optimism" within the Fed leadership, inflation remained a problem.
Central banks tend to increase rates when inflation is high to discourage spending and encourage saving in the hope this will reduce the pace of price rises.
But it's a balancing act, as higher rates can also encourage businesses to hold off on investing and hurt economic growth.
Like many central banks, the Fed has a target of keeping inflation at 2% or below. Warsh. Warsh noted that US inflation has been above that target "for more than five years".
Ahead of the midterm elections in November, affordability is one of the top concerns of American voters, who have seen diesel prices hit an all-time high and petrol rise above $4 (£3) a gallon on average.
Global oil prices have surged since the start of the US-Israel war with Iran, driving up the price of car fuel as well as the cost of goods and services generally.
Warsh said the decision to raise interest rates that the Fed "cannot affect any individual price whether it be oil prices, whether it be food stuffs at the grocery store", but could ensure price rises do not broaden across the economy.
He added that the strong jobs market and wider economy meant the Fed was focused on stabilising prices, adding that those least well off had most to gain from lower inflation.
Asked about the message the decision sent to Trump, Warsh chuckled before saying "I have got nothing for you on a discussion with the president".
The Federal Reserve is independent of the government, but has faced sharp criticism from Trump over its decisions on rates in recent years.
Trump was heavily critical of Warsh's predecessor Jerome Powell for not cutting rates.
The US president appointed Warsh to take over as Fed chair after Powell stepped down at the end of his term earlier this year.
Following Wednesday's announcement, Trump said on social media: "LOWER THE INTEREST RATES FOR THE UNITED STATES OF AMERICA, AND FAST!"
Earlier, White House Press Secretary Kush Desai told Fox News the president and White House had reiterated their "commitment to the independence of the Federal Reserve on numerous occasions" but said that did not prevent Trump being able to voice his opinions.
Warsh said at Wednesday's press conference that "part of the independence of the Federal Reserve is we stay in our lane".
The Fed's hike is the first rate move in any direction since they were cut in December 2025. The last time they were raised was in July 2023.
The increase will likely add to increasing mortgage rates for homebuyers, as the rates set by banks and other lenders are heavily influenced by the Fed's policy rate.
Major US banks JP Morgan, KeyCorp, and BNY all raised their prime lending rate on Wednesday to 7% from 6.75%, which will affect rates charged on credit cards and personal loans.
Mortgage costs have climbed over the past year but remain below peaks seen in 2023. A 30-year fixed deal is 6.76% on average, while a 15-year deal is 6.09%, according to figures from Freddie Mac.
Due to many US homeowners having 30-year and 15-year fixed-rate mortgages, changes to interest rates will not impact many Americans monthly repayments, though they could affect those looking to secure a loan for a home or refinance.
Warsh declined to provide his own view on where he saw interest rates going, but the majority of his fellow policymakers said they believe rates would be hiked again before the end of this year to between 4-4.25%.
A small majority said rates could rise further to the 4.25-4.5% next year, before cuts begin in 2028 and 2029.
The forecast suggested price rises will ease in the coming years, with inflation, the measure used to assess the cost of living, predicted to fall steadily to the Fed's 2% target by 2029.
The US Fed is not alone in facing rising inflation since the Iran war, with the European Central Bank raising rates last week and the Bank of England set to make its own decision on Thursday.
