Fed Hikes Rates 25bps, First Since 2023

Highlights

The FOMC voted 12-0 to raise the federal funds rate 25 basis points to a target range of 3.75%-4%, the first increase since July 2023.
Chair Kevin Warsh said inflation has stayed “too high ... for too long” and that the committee's price-stability standard “has not been satisfied.”
16 of 18 participants' projections point to at least one more hike this year; Goldman Sachs and CME futures both put October odds near 50%.
President Trump called the move wrong, saying rates “should go down when there is good news, not up,” while the dollar jumped past 156 yen.

Three years after its last increase, the Federal Reserve raised interest rates again on Wednesday, lifting the federal funds rate a quarter point to a target range of 3.75%-4% in a unanimous 12-0 vote. It is the first hike of the Kevin Warsh era at the central bank, and it lands at a moment when energy prices are climbing, tariffs are working through the supply chain, and the White House has spent weeks publicly demanding the opposite move.

Warsh gave no ground at his post-meeting press conference. “We must be confident that underlying inflation is moving to our objective clearly and at sufficient speed,” he said, adding that “today, the FOMC decided that this standard has not been satisfied.” Inflation, in his telling, has been “too high ... for too long,” a framing that leaves little room to read the hike as a one-off.

The committee's own projections back that up. Of the 18 participants who submitted forecasts, 16 see at least one more increase before the year is out — Warsh himself has declined to submit a dot since taking the chair. Goldman Sachs has already shifted its own call to match, telling clients it now expects a further 25-basis-point move in October, and CME's FedWatch tool puts the odds of that October hike at roughly 50%, with a cumulative 50-basis-point move by December priced at close to 39%.

The reaction from the White House was immediate and personal. President Trump told reporters that rates “should go down when there is good news, not up,” and separately pushed back on suggestions that Warsh's stance reflected any private conversation between the two, saying “I don't know who you're referring to” when asked. He argued he wants the Fed chair “to be independent,” before adding that his own read on rates is, in his words, better. Senior White House trade adviser Peter Navarro was more pointed, arguing the Fed should not be tightening “in the teeth of an energy price shock,” a reference to oil prices that have climbed sharply in recent weeks on supply disruptions.

Markets moved fast on the decision. The dollar surged past 156 yen, widening the policy gap with the Bank of Japan to as much as 300 basis points — a gap that traders expect to narrow only partially, since a CNBC report on the meeting notes economists surveyed by Reuters see a 97% chance the BOJ follows with its own hike to 1.25% at its next meeting, which would be Japan's highest rate in decades. That would be the first time in years the two central banks have tightened in the same stretch rather than pulling in opposite directions.

For crypto and risk assets broadly, a hawkish Fed is a familiar headwind, but the initial reaction was more nuanced than a simple risk-off move: several analysts framed the decision as a credibility play rather than a growth call. Arthur Hayes argued that hiking against a backdrop of elevated government debt is, perversely, stimulative — banks earn more on reserves, T-bill holders earn more on their paper, and the net effect is more consumption of financial assets even as the price of money rises. A Huobi HTX analyst offered a similar read, framing the 12-0 vote and the hawkish dot plot as the Fed “rebuilding inflation-fighting credibility at any cost,” noting the committee raised its growth forecast and cut its unemployment forecast even as it pushed back the timeline for core inflation to fall, effectively accepting a “higher for longer” regime.

The immediate question is whether October brings a repeat. With odds sitting near a coin flip and a majority of major banks already positioned for tightening going into this meeting, and with Goldman and JPMorgan both flipping their calls in the days beforehand, the market has had little time to adjust before the next decision comes into view. Warsh's refusal to commit to a dot of his own leaves that call deliberately unresolved.