By Wamala Sipirian
Published: September 17, 2026
The US Federal Reserve has raised interest rates for the first time in more than three years, increasing its benchmark rate to between 3.75% and 4% from 3.5%-3.75% in a unanimous decision.
The move came despite strong opposition from President Donald Trump, who had repeatedly called for interest rates to be lowered.
Fed Chair Kevin Warsh said the decision was driven by persistent inflation, saying it was “too high and has been for too long.” He described the increase as a “sober” and “responsible decision.”
Speaking at a press conference on Wednesday, Warsh said there was “an attitude of optimism” within the Federal Reserve’s leadership, but inflation remained a concern.
The Federal Reserve targets inflation at 2% or below. Warsh said US inflation had remained above that target for more than five years.
Higher interest rates generally make borrowing more expensive for consumers seeking mortgages, loans and credit cards. They can also provide higher returns for savers.
Impact on Borrowing and Mortgages
The rate increase could push up borrowing costs for Americans, including those seeking new mortgages or refinancing existing loans.
Major US banks including JPMorgan, KeyCorp and BNY raised their prime lending rate on Wednesday from 6.75% to 7%, a change that can affect interest rates on credit cards and personal loans.
Mortgage rates have also increased over the past year, although they remain below levels recorded in 2023. According to figures cited from Freddie Mac, the average rate for a 30-year fixed mortgage is 6.76%, while the average for a 15-year fixed mortgage is 6.09%.
Existing homeowners with fixed-rate mortgages generally will not see their monthly repayments change because of the Federal Reserve’s decision. However, higher rates could affect people seeking new mortgages or refinancing.
Fed Balances Inflation and Economic Growth
Central banks typically raise interest rates when inflation is high in an effort to discourage spending and encourage saving. The objective is to slow the pace of price increases.
However, higher borrowing costs can also discourage businesses from investing and put pressure on economic growth.
Warsh acknowledged that the Federal Reserve cannot directly control individual prices, including oil and food.
The Fed chair said the central bank could instead work to prevent increases in individual prices from spreading more broadly across the economy.
He also pointed to continued strength in the US jobs market and wider economy as reasons for maintaining the focus on price stability. Warsh said lower inflation would particularly benefit Americans on lower incomes.
Trump Criticises Fed Decision
Trump has been sharply critical of the Federal Reserve over interest rates and had urged officials to cut borrowing costs.
Earlier, he wrote on social media: “LOWER THE INTEREST RATES FOR THE UNITED STATES OF AMERICA, AND FAST!”
After the decision, Trump expressed support for Warsh but criticised the wider Federal Reserve board, describing it as “hostile” and “very political.”
“I’m relying on Kevin [Warsh], but he’s got, you know, a very tough board,” Trump told reporters.
He also said interest rates were “too high” and “not appropriate.”
Asked about the message the rate increase sent to the president, Warsh declined to comment directly, saying: “I have got nothing for you on a discussion with the president.”
Democrats Raise Concerns Over Borrowing Costs
Democrats in Congress criticised the rate increase, arguing that higher borrowing costs could increase financial pressure on Americans.
Senate Democratic leader Chuck Schumer said the decision would make loans more expensive.
“This is going to make everything become more expensive,” Schumer said, attributing the situation to what he described as poor economic management by Trump.
Further Rate Increases Possible
The Federal Reserve’s latest decision represents its first rate move in either direction since rates were cut in December 2025. The previous rate increase occurred in July 2023.
Warsh declined to give his own forecast for where interest rates would go next.
However, the source said a majority of Federal Reserve policymakers expected another increase before the end of 2026, potentially taking the rate to between 4% and 4.25%.
A small majority also expected rates could rise further to between 4.25% and 4.5% in 2027, before reductions begin in 2028 and 2029.
The projections indicate that policymakers expect inflation to gradually ease toward the Federal Reserve’s target by 2029.
The US is also not the only major economy dealing with inflationary pressure linked in the source to the war involving Iran. The European Central Bank raised rates the previous week, while the Bank of England was scheduled to announce its own interest-rate decision on Thursday.
Sources
BBC News