Fed Raises Rates Despite Trump Pressure, Signals Another Hike Likely in 2026

The Federal Reserve raised its benchmark interest rate on Wednesday, September 16, for the first time since 2023, defying President Donald Trump's repeated demands for lower rates as inflation, driven partly by the ongoing war with Iran, continues to run hot.

The Numbers

The Federal Open Market Committee voted unanimously, 12-0, for a quarter-point increase, raising the benchmark rate to a range of 3.75% to 4.00% — the first hike since July 2023. Related technical rates moved in step: the interest rate on reserve balances rises to 3.90% from Thursday, the primary credit rate to 4%, and standing repurchase operations will run at 4%. Seven regional reserve banks had requested the discount rate increase.

Why the Fed Moved

Fed Chair Kevin Warsh was direct about the reasoning: "The plain fact is that inflation is too high and has been for too long." The Fed's official statement pointed specifically to the geopolitical backdrop: "Uncertainty remains elevated owing, in part, to geopolitical developments. Today's policy action will support a timelier return to the Committee's 2 percent goal." The move ends a pause that had held rates at 3.5%-3.75% since December — a pause that had grown increasingly difficult to justify as energy costs, driven by the Iran war, pushed prices higher.

Trump's Immediate Reaction

Trump responded late Wednesday on Truth Social, demanding: "LOWER THE INTEREST RATES FOR THE UNITED STATES OF AMERICA, AND FAST!" He argued the benchmark rate "should be 1% or less" because the US has "the Best Credit in the World" — a claim that isn't accurate, since Canada, Australia, and Germany all carry higher S&P credit ratings than the US. Trump also wrote: "We are 'carrying' almost every country in the World, and that cannot go on any longer." Notably, he stopped short of directly criticizing Warsh himself in the post, even as he attacked the underlying decision.

A Notable Break From His Own Appointee

The vote marks Warsh's first major break from Trump since taking over as Fed chair — and he did it with the entire committee behind him. That unanimity is notable given the pressure had been coming from both directions: three regional Fed presidents had voted for a hike back in July, while the White House spent months publicly demanding cuts. In the end, nobody on the committee voted for either extreme. Wells Fargo's co-head of global fixed income, Brian Rehling, characterized the message bluntly: "Warsh and the committee are sending a clear message that the Fed will not tolerate inflation drifting further above target, even in the face of political pressure from the White House."

How Warsh Regained Credibility

Wednesday's hike follows through on signals Warsh sent at last month's Jackson Hole Economic Policy Symposium, where he first indicated rate hikes were on the table by saying the Fed had more "work to do" in fighting inflation — a speech that had already pushed market expectations toward a hike well before Wednesday's official decision.

More Hikes Signaled Ahead

The Fed's updated "dot plot" — its quarterly projection of individual officials' rate expectations — shows 12 of 18 officials expect another quarter-point hike by year-end, which would take rates to 4.125%, while four officials see rates reaching 4.375%. The hawkish signal extends well beyond 2026: 14 officials see rates ending 2027 above today's level, and the 2028 median projection sits at 3.9%, versus an earlier expectation of 3.4%. The Fed's estimate of the longer-run neutral rate also rose to 3.2%, suggesting officials increasingly believe the rate that neither stimulates nor restricts the economy has moved structurally higher.

Timing of the Next Move

Fed officials signaled another hike is likely before year-end, though the timing remains uncertain — the central bank could hold off at its upcoming October meeting, which falls just before the midterm elections, making a December increase the more likely vehicle for the next move.

Real-World Impact: Mortgages

Danielle Hale, chief economist at Realtor.com, noted the pressure on mortgage rates predates Wednesday's hike and shows no signs of easing: "The pressure on mortgage rates was here even before the Fed rate hike, and it doesn't show signs of relenting. The higher rate environment is a marked contrast to fall 2025, when rates dropped below 6.5%, and likely means less year-over-year momentum in home sales in the last quarter of 2026." Bill Banfield, chief business officer at Rocket Mortgage, offered a more measured take: "We have a solid economic foundation for housing, even as elevated rates squeeze affordability, especially for first-time homebuyers. For anyone house hunting right now, it's a buyers' market in many metros, with inventory at a six-year high and plenty of room to negotiate."

Not Just a Fed Problem, Some Economists Argue

Ryan Young, senior economist at the Competitive Enterprise Institute, argued the roots of the current inflation problem extend beyond monetary policy alone: ending the Iran war would eventually bring down energy prices, he said, while resolving the trade dispute with Canada would ease cost pressures tied to tariffs on key industrial sectors. "The answer is not necessarily in the Fed's hands," Young said. "Upcoming policy choices on Iran, Canada, and tariffs will play a large role."

What's Next

With the dot plot pointing toward further tightening and the timing of the next move likely pushed to December to avoid the appearance of election interference in October, markets and the White House alike will be watching closely for any further public friction between Trump and the Fed as the year winds down. For the Fed's full statement and projections, see the Federal Reserve's press release page.