Fed Hikes Interest Rates for First Time in 3 Years—Unanimous Decision Comes in Defiance of Trump

Federal Reserve policymakers have raised the benchmark interest rate for the first time in three years in response to pernicious inflation, defying President Donald Trump's insistent calls for lower borrowing costs.

Fed Chairman Kevin Warsh and the rest of the Federal Open Market Committee took the action on Wednesday, voting unanimously to raise the federal funds rate by a quarter percentage point. The move brings the overnight rate to a range of 3.75% to 4%, its highest level since last fall.

"Inflation remains elevated. Today's policy action will support a timelier return to the committee's 2% goal" for annual inflation, Warsh said at a press conference following the vote. "This committee will deliver price stability."

The decision marks a stunning reversal in outlook for the central bank, which as recently as March had been expected to cut interest rates this year. But soaring energy prices, fueled by the disruption in oil trade during Trump's war with Iran, have left Fed policymakers faced with a new inflation crisis.

Markets now expect the Fed to raise rates again once more before the end of the year. Mortgage rates have already risen sharply in anticipation of the policy change, climbing quickly toward 7% this month after hitting a three-year low of 5.98% in late February.

The rate hike may put Warsh in the crosshairs of Trump, who has persistently called for lower rates and publicly clashed with former Fed Chair Jerome Powell over rate policy.

On Sunday, while attending the Irish Open golf tournament, Trump said: "The United States is so strong, we should be paying the lowest interest rate in the world."

Warsh, handpicked by Trump to lead the central bank, had also called for lower rates before starting the job in May. But Warsh has faced mounting concerns from colleagues on the FOMC that inflation could again spiral out of control if monetary policy isn't tightened.

At the July meeting of the FOMC, when the majority voted to leave rates unchanged, three "hawkish" members dissented in favor of a rate increase. Now, the 12-member panel is unanimous in supporting a hike as the inflation threat looms.

The Fed uses higher interest rates to fight inflation and lower rates to stimulate the job market, in line with the central bank's mandate of maintaining price stability and maximum employment. The Fed doesn't directly set mortgage rates, which instead move in response to the bond market.

In recent weeks, the bond market has been beset by turmoil, with the yield on the key 10-year Treasury surging above 5% to nearly a 20-year high. That move reflects investor fears about inflation, growing federal deficits, and concerns about the Warsh Fed's willingness to defy Trump and raise rates if necessary.

The 10-year Treasury yield is a key benchmark for mortgage rates, as the typical 30-year home loan is typically refinanced or closed through a home sale at around the 10-year mark. And mortgage rates show no sign of easing after hitting a 15-month high last month.

Mortgage rates averaged 6.76% last week, according to Freddie Mac. That's the highest in 15 months, and rising rates have already put a dent in home sales for August, the latest data shows.

Existing-home sales plunged to a 14-month low in August, dipping below 4 million annualized for the first time since June 2025. And pending sales also retreated last month, snapping an eight-month growth streak, Realtor.com data shows.

"The pressure on mortgage rates was here even before the Fed rate hike, and it doesn’t show signs of relenting," says Realtor.com Chief Economist Danielle Hale. "The higher rate environment is a marked contrast to fall 2025, when rates dropped below 6.5%, and likely means less year-over-year momentum in home sales in the last quarter of 2026."

Developing story, more to follow.