Fed Hikes Rates in Warsh's First Move, Signals More Tightening Ahead

The Federal Reserve raised interest rates by a quarter percentage point on Wednesday and indicated that borrowing costs could climb further in the months ahead, in the first policy decision overseen by new central bank chief Kevin Warsh.

The move was unanimous, according to the Fed's latest statement and economic projections, which together point to a tighter monetary policy stance extending through next year. Updated projections showed 16 of 18 policymakers expect at least one more quarter-point increase by the end of this year, while only two foresee rates holding steady from here. Warsh again did not submit a rate projection.

The policy rate is projected to reach the 4.00%-4.25% range by the end of this year and to remain at that level through the end of 2027.

Warsh took office in late May after being chosen by President Trump, who had expected him to cut rates. Wednesday's decision instead signals a central bank keeping the door open to further tightening.

Markets took the outcome in stride. Major U.S. stock indexes were mostly higher, with the S&P 500 up 0.4% and the Nasdaq up 0.8%. Treasury securities held their gains, pushing yields lower: the two-year yield, seen as most sensitive to Fed policy expectations, fell 2.7 basis points to 4.631%, while the 10-year yield dropped 4.1 basis points to 4.957% and the 30-year yield slipped 4 basis points to 5.323%. The dollar index rose 0.2% to 99.89.

Michele Raneri, vice president and head of U.S. research and consulting at TransUnion, said the increase reflected the Fed's continued focus on persistent inflation, which has moderated from peak levels but remains elevated enough to warrant further action. She added that relatively resilient labor market conditions, with unemployment holding steady in recent months, gave the central bank confidence to raise rates now.

Brian Jacobsen, chief economist at Annex Wealth Management, questioned whether the cycle resembles 1994, when the Fed raised rates aggressively, or 1997, when it hiked once and stopped. He said the language about supporting a "timelier return" to the Fed's target made another hike this year less certain, noting that much can change before then. Jacobsen also said Warsh appeared to have read both the markets and the room in supporting the increase, which helped keep the market response relatively muted despite the change in course.