US Federal Reserve raises interest rates by 25 basis points amid persistent inflation

The US Federal Reserve (Fed) on Wednesday raised interest rates by 25 basis points in an attempt to tackle stubbornly high inflation in the world's largest economy.

This move is sure to anger President Donald Trump, who has called for lower rates and who recently nominated Kevin Warsh to the post of Federal Reserve Chair.

"Our predominant focus is on the price stability side of our mandate. The plain fact is that inflation is too high, and has been for too long," Warsh told a press conference.

Warsh has served as Fed Chair since May and during his confirmation process, he had assured Congress that central bank policymakers would "have no tolerance for persistently elevated inflation."

"Today's policy action will support a timelier return to the committee's 2% goal," Warsh added.

The increase boosts the Fed's target rate to a range of 3.75% to 4.00%.

Trump had promised to lower prices in his 2024 election campaign, but things turned out differently after his inauguration. The US now faces the combined impact of Trump's global import tariffs, an energy shock following the start of the US-Israeli war with Iran, and capital spending from the artificial intelligence boom.

After the announcement of the rate increase, Trump said US interest rates should be 1% or lower and that the rates should be cut fast.

"I ... talked to Kevin," Trump said. "And I said you might as well vote with the board because it's not going to matter. The board is very hostile. They're very political. They're doing the wrong thing."

Fed plans to 'stay in our lane'

Since his appointment to the job, speculation circulated around which direction Warsh would take the Fed, as Trump has pressured the institution to follow his lead.

But on Wednesday, Warsh joined the unanimous decision to raise interest rates, saying it had been made independent of what the market may be doing.

"We made this decision today based on our assessment of the situation," he said. "I'll observe market prices and see what they have to say. But today was our decision."

"Part of the independence of the Federal Reserve is we stay in our lane," Warsh said. "We let people that do trade policy and fiscal policy stay in their lane too. That's how we can stand up here and call them the way we see them."

Borrowers will feel some impact

The raise in interest rates will affect those who borrow money to make large purchases, such as a home, car or large appliance.

The new rate will also raise monthly payments and costs for those who are already paying interest on credit card debt.

Currently, household debt payments are relatively low overall as a percentage of after-tax income. So many households will not feel the burden on borrowing in the short term.

But the move could be good for those who are saving, as interest rates on savings accounts and certificates of deposit will rise.