US interest rates raised for first time in three years
The Federal Reserve unanimously voted to increase interest rates to 3.75%-4% from 3.5%-3.75% on Wednesday.
US interest rates have been lifted for the first time in more than three years and may rise again as part of efforts to curb climbing prices.
The Federal Reserve increased rates to 3.75%-4% from 3.5%-3.75% in a unanimous vote on Wednesday, despite strong opposition from President Donald Trump, who had urged cuts.
Fed Chair Kevin Warsh said the decision was taken because "inflation is too high and has been for too long", describing it as a "sober" and "responsible decision".
Trump, however, said rates "should be 1%, or less, because we are the Best Credit in the World - BY FAR".
Higher borrowing costs make loans, mortgages and credit cards more expensive, though they can improve returns on savings.
Warsh said there was "an attitude of optimism" among Federal Reserve leaders, but inflation was still a concern.
"For more than five years, inflation has been running above target," he said. "The plain fact is that inflation is too high and has been for too long."
Central banks usually raise rates when inflation is elevated to discourage spending and encourage saving, in the hope of slowing price increases.
But the approach is a delicate one, because higher rates can also prompt businesses to delay investment and weaken economic growth.
With the mid-term elections due in November, affordability is among the biggest worries for American voters, who have seen diesel prices reach a record high and petrol climb above $4 (£2.99) a gallon on average.
Global oil prices have jumped since the start of the US-Israel war with Iran, pushing up car fuel costs and the price of goods and services more broadly.
At a press conference after the rate decision, Warsh said the Fed "cannot affect any individual price whether it be oil prices, whether it be food stuffs at the grocery store", but could make sure price rises do not spread through the wider economy.
He added that a strong jobs market and broader economy meant the Fed was concentrating on stabilising prices, and said those least well off had the most to gain from lower inflation.
When asked what message the move sent to Trump, Warsh laughed before replying, "I have got nothing for you on a discussion with the president," and gave the same answer to similar questions.
The Federal Reserve is independent from the government, but has come under heavy criticism from Trump over its rate decisions in recent years.
Trump was especially critical of Warsh's predecessor Jerome Powell, who left at the end of his term earlier this year, for failing to cut rates.
After Wednesday's announcement, Trump said rates should be reduced to "1%, or less".
"LOWER THE INTEREST RATES FOR THE UNITED STATES OF AMERICA, AND FAST!", he posted on social media.
Earlier, White House press secretary Kush Desai told Fox News that the president and White House had "reiterated our commitment to the independence of the Federal Reserve on numerous occasions" but said that did not stop Trump from expressing his views.
Warsh said at the press conference that "part of the independence of the Federal Reserve is we stay in our lane".
This increase is the Fed's first move in either direction since rates were cut in December 2025. The last increase was in July 2023.
A 0.25pp rise will probably push mortgage rates higher for homebuyers, since rates set by banks and other lenders are heavily shaped by the Fed's policy rate.
Major US banks JP Morgan, KeyCorp and BNY raised their prime lending rate on Wednesday to 7% from 6.75% in response, which will affect rates charged on credit cards and personal loans.
Mortgage costs have risen over the past year but are still below the peaks seen in 2023. According to Freddie Mac, a 30-year fixed deal averages 6.76%, while a 15-year deal is 6.09%.
Because many US homeowners have 30-year and 15-year fixed-rate mortgages, changes in interest rates will not affect monthly repayments, although they could matter for people seeking a home loan or refinancing.
Warsh declined to say where he personally thought interest rates would go next, but most of his fellow policymakers said they expected rates to be raised again before the end of this year to between 4-4.25%.
A small majority said rates could climb further to 4.25-4.5% next year, before cuts begin in 2028 and 2029.
The outlook suggested price rises will slow in the coming years, with inflation, the measure used to gauge the cost of living, forecast to fall steadily to the Fed's 2% target by 2029.
The US is not the only country dealing with the inflationary effects of the conflict in the Middle East, with the European Central Bank raising rates last week and the Bank of England due to make its own decision on Thursday.