The Federal Reserve raises interest rates for the first time in three years

The Federal Reserve is raising rates for the first time in three years, bringing them into the target range of 3.75%-4%, with the hypothesis of at least one more increase by the end of the year. The intervention of 25 basis points, adopted unanimously (12 to zero), was expected and already reluctantly discounted by the markets, laying the foundations for a clash between the number one of the US Central Bank Kevin Warsh and his sponsor, President Donald Trump, who since his return to the White House has done nothing but push for a rate cut to support the economy, going so far in recent days as to threaten the Fed in case of failure to take action in this direction seven weeks before the midterm elections in November. “I have nothing to report regarding any discussions with the president: however, I will not consider this as the official question,” Fed Chairman Kevin Warsh said in the post-FOMC briefing when asked what his message to Donald Trump was. "As far as American citizens are concerned, it is the less well-off groups who benefit the 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," Warsh said. US economic activity expanded "at a solid pace, showing strong resilience".

With the pending geopolitical uncertainties, he further stated, the employment trend is solid, while "for 5 years inflation has remained above the target" of 2%: "too high for too long". The decision adopted unanimously today by the FOMC therefore showed "the will to fight the rise in prices", in compliance with its dual mandate of a solid labor market and low inflation, Warsh said, once again noting the strategic importance of the independence of the Federal Reserve: "We remain in our lane". Last year the tycoon forcefully insisted on the reduction in the cost of money and in the end the Federal Reserve proceeded with three reductions. The ground for a contrary trend has now matured due to the intensification of the conflict in the Middle East and the uncertainties over oil supplies, which has pushed up crude oil prices and fueled inflation expectations, with the yields of the 10-year T-Bond rising dangerously above 5%, to the highest since 2007. Warsh managed the relationship with Trump differently than his predecessor, Jerome Powell, who ended up under investigation in retaliation - and then exonerated - for the mega renovations and expansion of the Fed headquarters in Washington. Month ago, the probability of a rate hike was only 36%, as the market expected subdued inflation data and feared Warsh's reluctance to commit the Fed to a restrictive ('hawkish') monetary policy. However, Warsh's statements during the Fed's annual August symposium in Jackson Hole, Wyoming, have begun to change the scenarios of 5% those of August production), combined with the labor market "considerable at full employment", according to his definition. Even the rise in crude oil prices above 100 dollars a barrel, caused by a conflict in Iran with uncertain developments, with petrol and diesel above 4 and 6 dollars a gallon (increasing by around 50% compared to pre-war values) in the USA, has increased the pressure on the Fed for a rate increase.

Warsh's work appears challenging: according to the latest estimates of the 'Summary of Economic Projections', relating to unemployment, inflation and GDP, the jobless remain at 4.1% from the end of 2026 to 20029, while prices are expected at 2% only in 2029. GDP is estimated at 2.3% in 2026, 2.4% in 2027, 2.2% in 2028 and 2.1% in 2.029. As for Fed Funds: 4.1% in 2026, to then settle at 4.1%, 3.9% and 3.6% in 2029.