The US Federal Reserve has raised its benchmark interest rate for the first time in more than three years, lifting the target range by 0.25 percentage points to between 3.75% and 4%.
The decision was unanimous and came despite President Donald Trump’s public calls for lower borrowing costs. The last increase was in July 2023, while the central bank’s most recent move before this decision was a rate cut in December 2025.
Federal Reserve Chair Kevin Warsh said inflation had stayed too high for too long, describing the increase as a sober and responsible choice. He said the central bank’s leadership retained an optimistic outlook but remained concerned about price pressures.
The Fed aims to keep inflation at 2% or lower. Warsh said inflation in the United States had exceeded that target for more than five years. Rising fuel prices, linked in the source to higher wholesale oil prices since the start of the US-Israel war with Iran, have added to household affordability pressures and pushed up the costs of other goods and services.
Warsh said the Fed could not directly determine individual prices, including those of oil or food, but could act to prevent price increases from becoming more widespread in the economy. He also pointed to the strength of the jobs market and the broader economy as reasons to maintain the focus on price stability.
Impact on borrowers and savers
Higher interest rates generally increase the cost of borrowing through mortgages, loans and credit cards, while potentially improving returns for savers. Major banks including JP Morgan, KeyCorp and BNY raised their prime lending rate to 7% from 6.75% following the Fed’s decision.
The move could raise costs for people taking out new mortgages, refinancing existing loans or carrying other forms of debt. According to Freddie Mac figures cited in the source, the average 30-year fixed mortgage rate was 6.76%, while the average 15-year fixed rate was 6.09%. Many homeowners have fixed-rate mortgages, meaning their monthly repayments will not immediately change.
Trump said he supported Warsh but criticised the Fed board as hostile and political, maintaining that rates were too high. Democratic Senate leader Chuck Schumer said the increase would make loans more costly and could push more Americans into debt.
Most Fed policymakers indicated that rates could rise again before the end of the year, to a range of 4% to 4.25%. A small majority projected a further increase to 4.25%-4.5% next year, followed by possible cuts in 2028 and 2029. The forecasts also suggested inflation could gradually return to the Fed’s target by 2029.
Source: BBC News
