Fed hikes key rate for first time since 2023 as inflation stays high

The Federal Reserve raised its benchmark interest rate by a quarter-point to about 3.9% on Wednesday, its first increase since 2023, as policymakers moved to contain inflation that has stayed above the central bank's 2% target.

Fed Chair Kevin Warsh, who took the top job in May after being appointed by President Donald Trump, said the rate-setting committee felt it had to act. The Fed also signalled that a second hike could follow later this year.

The higher rate will feed gradually into borrowing costs for mortgages, auto loans and credit cards. It lands just seven weeks before the midterm elections, at a time when many households are already straining under the cost of housing, fuel and groceries.

The decision marks a shift for Warsh. While under consideration by Trump last year, he had suggested the Fed could lower its key rate, echoing the president's push for cheaper borrowing. After his appointment, Trump made clear he wanted rates cut rather than raised.

Testifying before the Senate this spring, Warsh said he would act independently and had not committed to any particular outcome during the selection process. On Wednesday he argued that higher rates could help bring down the costs weighing on American families over time.