Federal Reserve raises rates 25bp to 3.75–4%; Trump blames board, spares Warsh

The Federal Reserve unanimously raised the federal funds rate by 25 basis points to 3.75–4% on September 16, citing persistent inflation. President Trump criticized the decision as politically motivated but defended Fed Chair Kevin Warsh, whom he appointed. Markets experienced volatility, with the dollar and Treasury yields rising while equities and gold declined.

Quick Facts

Federal funds rate raised by 25 basis points
Trump criticized Fed board as hostile and political
Warsh defended decision as responsible and necessary
U.S. dollar index rose 0.73%
10-year Treasury yield rose from 4.96% to 5.01%

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The Federal Reserve's policy committee voted unanimously on September 16 to raise the federal funds rate by 25 basis points to a range of 3.75–4%, marking its first increase since July 2023. All 12 voting members, including Fed Chair Kevin Warsh, supported the decision. The Fed stated that inflation remains elevated and has persisted for more than five and a half years, necessitating action to achieve price stability.

President Trump publicly criticized the decision, calling the Federal Reserve board "hostile" and "political," and claiming the rate hike was motivated solely by politics to damage his administration. However, Trump distinguished his criticism from Warsh, stating he still has confidence in the Fed chair. Trump told reporters he had instructed Warsh to vote with the board majority, noting Warsh "doesn't have the votes" and faces a hostile board. Trump argued that interest rates are too high given U.S. economic strength, and suggested rates should be 1% or lower because the United States has the "best credit in the world." He also connected interest rates to trade deficits, claiming that eliminating trade deficits could generate $1.5 trillion annually.

Warsh defended the decision at a press conference, stating it was "serious, careful, and responsible." He emphasized that inflation is "too high and has been for too long" and that economic data—including employment, consumption, productivity, and capital investment—supported the increase. The Fed's guidance indicated additional rate increases are likely before the end of 2026, with the majority of officials expecting at least one more hike this year.

Markets reacted with volatility following the announcement. The U.S. dollar index rose 0.73% to 100.34, while the 10-year Treasury yield climbed from 4.96% to 5.01%. Equity indices declined: the Dow Jones fell 631 points (-1.21%), the S&P 500 dropped 0.45%, and the Nasdaq declined 0.01%. Gold prices initially fell roughly $20 per ounce before recovering slightly. Financial sector stocks were particularly hard hit.

Topics

Politics White House and Trump Business World

#market volatility #federal funds rate #interest rates #financial markets #Kevin Warsh #midterm elections #FOMC #Treasury yields #rate hike #Central Bank

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Why This Matters

The Federal Reserve's rate increase directly affects borrowing costs across the U.S. economy—mortgages, credit cards, business loans, and savings returns. Markets reacted immediately: the dollar strengthened 0.73%, Treasury yields rose, and equities declined (Dow -1.21%), signaling expectations of sustained higher rates through 2026. The public disagreement between Trump and the Fed board over policy direction creates uncertainty for forward guidance and may influence investor positioning ahead of potential future rate decisions.

Timeline & Sources

Sep 16, 2026

Wire

Federal Open Market Committee votes unanimously to raise federal funds rate by 25 basis points to 3.75–4%

Sep 16, 2026

Wire

Fed Chair Kevin Warsh holds press conference explaining inflation rationale for rate increase

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