The Federal Reserve lifted its benchmark rate by a quarter point Wednesday, the first increase in more than three years, pushing the target range to 3.75%-4% despite sustained pressure from President Donald Trump for cuts. The unanimous vote by the policy-setting board marks a decisive break from the December 2025 reduction and signals the central bank's willingness to absorb political heat in pursuit of price stability.
Unanimous move tests political pressure
Chair Kevin Warsh described the decision as "sober" and "responsible," citing inflation that has remained above the Fed's 2% target for more than five years. Trump, who had demanded reductions on social media and in public remarks, told reporters after the announcement that he supports Warsh personally but characterized the board as "hostile" and "very political." The president added that he had urged Warsh to "vote with the board because it's not going to matter." Warsh, asked about the message the hike sends to the White House, declined to discuss private conversations.
Inflation above target for five years
Warsh acknowledged an "attitude of optimism" within the Fed's leadership but emphasized that the central bank cannot control individual prices such as oil or groceries. The surge in fuel costs, driven by wholesale oil prices since the onset of the US-Israel war with Iran, has lifted a broad range of goods and services. The chair argued that those least well off stand to gain the most from bringing inflation down, even as higher borrowing costs risk slowing business investment and economic growth.
Banks pass through higher prime rate
Major lenders moved quickly to adjust their pricing. JPMorgan, KeyCorp, and BNY each raised their prime lending rate to 7% from 6.75%, a shift that will flow through to credit cards and personal loans. The increase represents the first rate move in any direction since the December 2025 cut, and the first hike since July 2023.
Mortgage costs still below 2023 peak
Home-loan rates have risen over the past year but remain beneath the highs reached in 2023. The average 30-year fixed mortgage stands at 6.76%, while the 15-year equivalent averages 6.09%, according to Freddie Mac data. Senate Democratic leader Chuck Schumer warned the hike would make loans costlier and push more Americans into debt, attributing the outcome to what he called Trump's inability to manage the economy.