Trump criticizes Fed after 25 basis point rate hike, urges 1% or lower rates

US President Donald Trump sharply criticized the Federal Reserve on Wednesday, following the central bank’s unanimous decision to raise its benchmark interest rate for the first time since 2023. Trump accused policymakers of “doing the wrong thing,” reflecting growing tension between the White House and the Fed over interest-rate policy amid persistent inflationary pressures.

Trump maintains support for Fed chair Warsh

Despite his public criticism of the Federal Reserve’s latest action, Trump continued to express confidence in Chair Kevin Warsh, stating he was still “relying on Kevin.” Warsh, a seasoned economist and former Fed governor, was recently appointed as the central bank’s chair to navigate ongoing economic uncertainty and inflation risks.

Trump revealed he spoke with Warsh ahead of the decision but saved his strongest remarks for the broader Federal Open Market Committee (FOMC). The president insisted US interest rates should be set at 1% or lower, far below the Fed’s current position. He described the wider board as hostile and suggested the committee was acting politically, though he did not provide specific evidence for these claims.

Warsh was not overruled by colleagues; he joined all members of the committee in a 12–0 vote to raise the federal funds target range by 25 basis points to 3.75%–4%.

Trump has repeatedly said he prefers interest rates around 1% or lower, making his intended policy path strikingly divergent from the Fed’s current direction.

After the vote, Warsh defended the increase, arguing that inflation remains “too high” and recent data have not provided confidence that underlying inflationary trends have improved sufficiently.

Fed signals possible further tightening this year

Fed officials signaled that persistent inflation may justify additional rate hikes this year. Warsh characterized the latest increase as the removal of “a degree of accommodation,” implying the central bank still does not consider its monetary settings fully restrictive.

Updated projections now show that 16 of 18 Federal Reserve officials expect at least one further 0.25% increase before the end of the year. Warsh did not submit an individual rate projection for the so-called dot plot, meaning his own expectations for further tightening remain unclear.

Market analysts and economists interpreted the Fed’s rhetoric as a signal for “higher for longer” rates. Michael Gapen, chief US economist at Morgan Stanley, commented that if policymakers do not view their policy stance as restrictive “while oil remains elevated, you’ve got some work to do.” Morgan Stanley subsequently adjusted its outlook to anticipate more tightening in the months ahead.

Krishna Guha of Evercore ISI described Warsh’s press conference as “coherent, confident and consistently hawkish,” suggesting the Fed is committed to further combating inflation. This stance has reinforced investor perception that current monetary policy is entering a new tightening phase.

Wide gap between Trump and the Fed on rate policy

The divergence between Trump’s preferred policy and the Federal Reserve’s outlook has rarely been so clear. While Trump advocates for rates at or below 1%, the Fed has now set its target range at 3.75%–4% and signals at least one additional increase is likely before year-end.

Brian Rehling, head of global fixed income strategy at Wells Fargo Investment Institute, noted the Fed’s projections imply rates could “move higher and remain elevated for longer than investors previously expected.”

Trump emphasized his support for Warsh’s independence but continued to push for a dramatic shift in monetary policy. Warsh, for his part, has highlighted the Fed’s commitment to restoring price stability and sticking to its policy mandate as inflation remains a concern.

The Federal Reserve’s decisions in the coming months are likely to prolong the debate over how to best manage inflation, growth, and financial stability in the world’s largest economy.