US Fed raises interest rates after three years

The US Federal Reserve has raised interest rates for the first time in more than three years, lifting its benchmark rate to between 3.75% and 4% as policymakers seek to contain persistent inflation.

The increase from the previous range of 3.5% to 3.75% was approved unanimously by the Federal Open Market Committee. The decision came despite repeated calls from President Donald Trump for the central bank to reduce borrowing costs.

Federal Reserve Chair Kevin Warsh said inflation remained unacceptably high and had stayed above the central bank’s 2% target for an extended period. He described the rate increase as a responsible step aimed at preventing price pressures from spreading further across the economy.

Higher interest rates generally make borrowing more expensive for households and businesses. Consumers may face higher costs on variable-rate loans, credit cards and new mortgages, while savers can potentially benefit from improved returns on deposits.

The latest move is the first change in interest rates since December 2025 and the first increase since July 2023. Major US banks, including JPMorgan, KeyCorp and BNY, subsequently raised their prime lending rates to 7% from 6.75%, potentially increasing borrowing costs for consumers.

Mortgage rates could also remain elevated for prospective homebuyers and people seeking to refinance existing loans. However, homeowners with fixed-rate mortgages generally will not see their monthly payments change because of the Fed’s decision.

Warsh acknowledged that the central bank could not directly control individual prices such as oil or food. Instead, he said monetary policy could help prevent temporary price increases from becoming broader and more persistent inflation.

The Fed is also closely watching the labour market and overall economic activity while attempting to balance price stability with economic growth. Higher borrowing costs can discourage spending and investment, but prolonged rate increases can also put pressure on businesses and economic expansion.

Most Fed policymakers indicated that another increase could be appropriate before the end of the year, potentially taking the benchmark rate to between 4% and 4.25%. A smaller majority projected that rates could rise further next year before eventual reductions in 2028 and 2029.

The central bank expects inflation to gradually ease over the coming years and move closer to its 2% target by 2029.

The rate decision comes amid wider inflation concerns linked to higher energy costs and instability in global oil markets. Other major central banks are also confronting similar pressures as they assess the impact of elevated energy prices on their economies.