Federal Reserve hikes key rate to tackle ‘too high’ inflation, defying Trump demands for cut

The Federal Reserve raised its benchmark interest rate on Wednesday (September 16, 2026) for the first time since 2023 in an effort to quell stubbornly-high inflation, a move that could spur a sharp response from the White House.

The quarter-point increase lifts the Fed’s key rate to about 3.9% and, over time, could result in higher borrowing costs for mortgages, auto loans, and credit cards. In a set of quarterly projections, the Fed also signalled that its rate-setting committee expects to hike rates a second time later this year to 4.1%.

“Today’s policy action will support a timelier return” to the central bank’s 2% inflation goal, the Fed said in a statement.

The move comes as Americans are already struggling with high costs for groceries, gas, and housing. Affordability has taken on a leading role in the upcoming midterm elections, just seven weeks away.

‘Plain fact is that inflation is too high;

In a press conference following the Fed’s announcement, Chair Kevin Warsh emphasized that the economy has shown signs of gathering speed since the central bank decided to keep rates unchanged in late July. Inflation has also remained stubbornly above the Fed’s 2% target and he noted that there is little sign it is cooling.

“The plain fact is that inflation is too high and has been for too long,” Mr. Warsh said. “We must be confident that underlying inflation is moving to our objective clearly and at sufficient speed. Today the FOMC decided that this standard has not been satisfied,” he added, referring to the policy-setting Federal Open Market Committee, an arm of the Fed.

“Warsh’s tough talk around inflation in the post-meeting press conference suggested that he may be pushing for higher rates in meetings to come,” said Preston Caldwell, chief U.S. economist at Morningstar.

Mr. Warsh also said renewed combat between the U.S. and Iran, which has driven up gas prices, also convinced Fed officials to support rate hikes. “There’s no hiding from hotspots around the world,” he said.

Mr. Warsh noted that other central banks are hiking interest rates, in response to global turmoil and higher gas prices. The European Central Bank raised its key rate last week, and the Bank of Japan is expected to do the same September 18.

The Fed next meets in late October and most economists expect officials will keep rates unchanged then because it is just a week before the midterm elections. But Wall Street analysts now see a rate hike by December as a near certainty, according to futures prices.

Trump renews call for Fed to lower interest rates “AND FAST”

U.S. President Trump reacted angrily to the decision on Wednesday (September 16, 2026), renewing his call for the Fed to lower interest rates “AND FAST” in a social media post.

The President has launched an unprecedented assault on the Fed’s independence since taking office, attempting to fire a Fed Governor and launching a criminal probe against Warsh’s predecessor in his quest for lower rates to spur economic activity.

Wednesday’s statement, however, refrained from directly insulting or criticising Mr. Warsh, as Mr. Trump was wont to do with former Fed chair Jerome Powell.

Earlier, when asked how the President might react to the rate increase, Mr. Warsh said, “I’ve got nothing for you on a discussion with the president.” He might also have a measure of protection from the fact that his father-in-law is Ronald Lauder, a friend of Mr. Trump’s and a billionaire donor to his campaigns.