The Federal Reserve unanimously voted Wednesday to raise interest rates for the first time in three years and signaled it might hike again this year, a move that will test the delicate relationship between President Donald Trump and his new Fed chair, Kevin Warsh.
Central bankers are increasingly worried that inflation — worsened by soaring oil prices and an artificial intelligence investment boom — is not on a path back to their 2% target.
The decision comes less than seven weeks out from elections that will determine the balance of power in Congress, and as investors have already been driving long-term rates to nearly two-decade highs. The Fed’s benchmark rate is now set between 3.75% and 4%.
“Inflation remains elevated,” the central bank’s rate-setting committee said in a post-meeting statement. “Today’s policy action will support a timelier return to the Committee’s 2 percent goal.”
The rate increase signals the Fed’s seriousness about combating inflation, which has stood above target for more than five years, but markets are hungry for information about what comes next. Already, Wall Street is betting that more rate hikes could be in store, which would further stoke tensions with the president, who will likely already be frustrated by the Fed’s action this week.
Trump has repeatedly called on the Fed to lower borrowing costs and regularly clashed with former central bank Chair Jerome Powell over his resistance to doing so. Still, under Powell, the Fed cut rates three times last year.
But in their latest quarterly economic projections, only two of the committee’s 19 members thought that rates should stay where they are now through the end of the year. Most forecast they would need to hike once more, and four policymakers thought two increases might be warranted.
Warsh, who has frequently criticized the practice of providing guidance about what the Fed might do in the future and publicly forecasting where the economy is headed, did not submit projections alongside his colleagues.
But the new Fed chief supported the central bank’s decision to raise borrowing costs, and the move came after he suggested heightened concern about the trajectory of inflation.
The Fed’s statement noted robust consumer spending, which has helped bolster higher prices.
“While uncertainty remains elevated owing, in part, to geopolitical developments, domestic spending has been resilient,” it said.