The U.S. Federal Reserve announced on September 16 a rate hike of 25 basis points, raising the federal funds rate target range to 3.75% to 4%. This is the Fed's first rate hike since 2023; President Trump immediately publicly stated that he demands the rate to be lowered to 1% or even lower, and hinted at regretting his nomination of current Fed Chair Kevin Warsh.

The Fed's rate hike decision was unanimously approved by all voting members, with no opposition; Chair Kevin Warsh stated after the meeting, "Inflation remains high... today's policy action will help achieve the committee's 2% inflation target more timely," and bluntly noted, "It is a fact that inflation is too high and has persisted for too long." According to the Fed's latest dot plot, 12 out of 18 voting members support another 25 basis point hike within the year.

The direct trigger for the Fed's shift to rate hikes was stronger-than-expected employment data: the U.S. Bureau of Labor Statistics reported that 162,000 jobs were added in August, with the unemployment rate holding steady at 4.1%, better than market expectations; meanwhile, the latest annual inflation rate remains at 3.4%, far above the Fed's 2% target, with the market pricing the probability of a September rate hike rising to 58.4% at one point.

Prior to this decision, Trump had pressured the Fed through multiple channels: he repeatedly called on Truth Social to "lower rates," stating that "high rates put the U.S. in an extremely unfair position, and I will not allow this to happen," and urged the Fed Board to "be patriots this time"; he even threatened to halt trade with countries that have a trade deficit with the U.S. Vice President Vance also echoed this sentiment, stating that high rates are making it unaffordable for Americans to buy homes.

After the rate hike decision was announced, Trump explicitly demanded that rates be lowered to 1% or lower, and stated that if he had known Warsh would advocate for a rate hike, he would not have nominated him to lead the Fed. Notably, Warsh was personally appointed by Trump at a White House ceremony on May 22 to replace Powell as Fed Chair.

The market's reaction to this rate hike was relatively calm, described by some analysts as a "sigh of relief" rebound: the S&P 500 rose by 0.3%, the Nasdaq increased by 0.7%, and the Dow Jones index remained flat; the 10-year U.S. Treasury yield fell below 5%, and the 30-year yield decreased by 5 basis points. Analysts pointed out that this rate hike objectively strengthened market confidence in the Fed's independence—showing that even a chair nominated by the president may not necessarily follow the president's directives in policy, which is an important reason why bond market yields did not rise but fell, while risk assets received support; Trump's ongoing public pressure and trade threats have not changed the Fed's policy path in the short term, and may further solidify Warsh's motivation to maintain a tough stance on monetary policy to uphold institutional credibility.

This is the Fed's first rate hike since 2023 and the first major rate decision chaired by Kevin Warsh since he took office in May.

Source: Public Information