The Fed raises rates by 25 basis points, Trump criticizes and calls for a return to 1%

A rate hike now, three years after the last one, and another very likely one by the end of 2026. These are the decisions coming from the Federal Reserve, after the third meeting of the board with Kevin Warsh as president. A move that the White House defines as "unfortunate". Trump claims that rates should be at 1%, the Fed has instead decided to raise them by 25 basis points: the cost of money, in line with expectations, rises from the range between 3.50% and 3.75% to that between 3.75% and 4%. This is the first increase since July 2023: since then, before today's decision, the FOMC had reduced rates six times, for a total of 175 basis points. In recent days, US President Donald Trump had repeatedly called for a cut in interest rates rather than an increase in them. “I have nothing to report regarding any discussions with the president,” Warsh commented. "It is the less well-off groups who benefit most from price stability. Today's decision is the right one to fulfill the mandate given to us by Congress, which is to guarantee price stability," he added.

The unanimous decision. Criticize the White House

From the note released at the end of the FOMC meeting it emerges that the decision to raise rates by 25 basis points to 3.75%-4% was taken with a unanimous vote (12 to zero). White House spokesman Kush Desai speaks of a decision that would not be "from the administration's point of view, supported by particularly convincing economic reasons".

Trump: "Rates should be 1% or less, Fed lower them immediately"

For Trump, interest rates should be reduced to 1% or even lower, he writes in a message published on Truth, "because we have by far the best credit score in the world." The USA, continues the tycoon, is "in full expansion thanks to new investments" and if it stopped trade with all the countries with which it has a deficit, "i.e. the majority", it would earn at least 1,500 billion dollars a year. "The word 'deficit' is nothing more than a fancy term for a loss. We are propping up almost every country in the world and this cannot continue. Lower interest rates for the United States of America, and do it quickly."

The Fed sees another rate hike later this year

The note also shows that the Federal Reserve sees another rate hike by the end of the year to combat inflation. During the two-day closed-door meeting, the FOMC revised its forecasts for the US economy: inflation to 3.7% on an annual basis by the end of 2026, according to the median of the projections, compared to the 3.6% estimated at the June meeting. Benchmark interest rates will be between 4%-4.25% by the end of the year, above the level announced today.

The Fed note

Economic activity, the Fed note continues, "is expanding at a solid pace. Although uncertainty remains high, partly due to geopolitical developments, domestic spending has shown resilience". Furthermore, productivity growth "is sustained and investments in capital are robust. The increase in employment has gone hand in hand with the trend of the workforce and the unemployment rate has undergone minimal changes". "Inflation - concludes the note - remains high. Today's monetary policy decision will favor a more timely return to the 2% objective set by the Federal Open Market (FOMC). The Committee will guarantee price stability".

Warsh's comment

US economic activity expanded "at a solid pace, showing strong resilience," Fed Chairman Kevin Warsh said. With the pending geopolitical uncertainties, he added, the employment trend is solid while "for 5 years inflation has remained above the target" of 2%: "Too high for too long", Warsh explained, and the "decision adopted today unanimously by the FOMC showed the will to fight the rise in prices", in compliance with its dual mandate of a solid labor market and low inflation.

See also

Trump: "Fed will cut rates or stop trade with countries with deficits"