With rate hike odds at 90% ahead of the decision, Warsh was asked at his press conference whether this was a market-led move, and he said, “Today was our decision.”
“We made the decision based on our assessment of the situation. Sometimes the market tries to prejudge our outcomes,” he added.
Notably, the central bank’s preferred inflation gauge, the personal consumption expenditures (PCE) price index, increased 3.7% Y/Y in August, well above the Fed’s long-term 2% target. In fact, PCE has remained above 2% for 65 straight months. Elsewhere, data earlier this month showed the U.S. consumer price index (CPI) rising 3.4% Y/Y in August, with over one third of the growth due to a jump in gasoline prices.
The escalation of conflict in the Middle East and increased threats to key Gulf shipping corridors have driven above $100 per barrel. This development is expected to contribute to further increases in U.S. inflation.
“Inflation remains elevated. Today’s policy action will support a timelier return to the Committee’s 2 percent goal. The Committee will deliver price stability,” the FOMC said in a statement.
“The plain fact is that inflation is too high and has been for too long,” Warsh later told reporters.
“This summer’s inflation readings do not tell me that underlying trends have meaningfully improved. Based on the most recent CPI and (producer price index) data, the 12-month change in total PCE prices likely was around 3.6 percent in August. Core PCE and CPI prices are running at about 3.2 percent and 2.4 percent respectively. Too many categories are still posting increases above 3 percent, on both a 6- and 12-month basis,” Warsh said earlier in his opening remarks.
The Federal Reserve on Wednesday hiked its key interest rate as widely expected, marking the first tightening of monetary policy since July 2023. Meanwhile, the central bank’s updated dot plot showed one more projected rate hike for the year.
Fed Chair Kevin Warsh said the decision was led by a strengthening U.S. economy, a lack of improvement in summer inflation trends, and geopolitics, adding that he and his colleagues on the Federal Open Market Committee (FOMC) agreed that broader financial conditions were not restrictive enough. He again pushed back against providing forward guidance and did not provide his own projections in the dot plot.
The FOMC earlier unanimously voted to raise the federal funds rate to 3.75%-4.00% from 3.50%-3.75%. Separately, the new Summary of Economic Projections (SEP) predicted a median federal funds rate of 4.1% at the end of 2026, implying at least one more hike.
The SEP also showed that at least 12 members of the FOMC saw one more rate hike this year, while four penciled in two more hikes. Two members see no more hikes.
Coming into Wednesday, rate hike expectations had been steadily building, driven by soaring inflationary concerns due to spiking oil prices amid a widening conflict in the Middle East, a relentless rout in the U.S. bond market, and U.S. economic data that pointed to a combination of resilient growth, a strong labor market, and elevated inflation.
Meanwhile, US President Donald Trump on Wednesday leveled his most pointed — though still indirect — criticism yet at his hand-picked Federal Reserve chief, fuming on social media over the central bank’s move to raise interest rates in a bid to calm persistent inflation.
“Interest Rates in the United States should be 1%, or less, because we are the Best Credit in the World — BY FAR,” he wrote on Truth Social, his social media platform.
“LOWER THE INTEREST RATES FOR THE UNITED STATES OF AMERICA, AND FAST!” he concluded.
It was the closest Trump has come yet to leveling one of his broadsides directly at Kevin Warsh, though he later told reporters he still had confidence in the man he picked earlier this year to take over the Fed from Jerome Powell, a figure the president frequently derided for not delivering the dramatic rate cuts Trump has routinely demanded.
“I … talked to Kevin,” Trump said, appearing to confirm an interaction with the Fed chief that Warsh himself has so far declined to corroborate. “And I said you might as well vote with the board because it’s not going to matter. The board is very hostile. They’re very political. They’re doing the wrong thing.”
Trump, as he has in recent social media posts, also appeared to connect persistent US trade deficits with the borrowing costs set by the central bank, even though the two are largely unrelated. Trump had previously threatened to cut off all trade from countries with which the US had trade deficits if the Fed did not cut interest rates.
At the same time, U.S. Treasury yields on Wednesday turned higher across most of the curve, as a bond rally that initially kept going after the Federal Reserve’s widely expected interest rate hike gave way to a sell-off following comments from Fed Chair Kevin Warsh.
The benchmark was now up 1.4 basis points to 5.010%, crossing the 5% mark for a second straight day and hovering near its highest level since April 2007.
The shorter-end, more rate-sensitive surged 5.6 basis points to 4.719%, a day after hitting its highest since mid-2024.
“The plain fact is that inflation is too high and has been for too long,” Warsh told reporters at a press conference following the Federal Open Market Committee’s (FOMC) decision to raise the federal funds rate to 3.75%-4.00% from 3.50%-3.75%.
Traders also focused on hawkish signals from the Fed’s new Summary of Economic Projections (SEP), which showed a median federal funds rate of 4.1% at the end of 2026, implying at least one more hike this year.
Moreover, the dot plot showed that at least 12 members of the FOMC now see one more rate hike this year, while four penciled in two more hikes. Two members see no more hikes. Additionally, the median projection for core PCE inflation to return to the Fed’s 2% target was pushed out to 2029 from 2028.
However, as I discussed in my , while described one of the possible scenario what if the Federal Reserve goes for an hike, President Trump could try to influence the Fed Chair Kevin Warsh, proved right, but the only difference is Trump did it after the announcement of Fed’s decision on interest rates yesterday.
Now, could remain under bearish pressure, as they lost the day’s gain soon after the announcement of the Fed’s decision on the rate hike, and even tested the day’s low at $4,274.66, before a short reversal from the bottom.
On evaluating the movements of the gold futures on a daily chart, I find that, despite closing yesterday below the key support at $4,388.
