Fed Defies Trump, Raises Interest Rates to 4% Amid Inflation Concerns

Fed Chair Kevin Warsh and the Federal Open Market Committee (FOMC) have done their job, not listening to President Trump's demands for lower interest rates. The FOMC raised the key interest rate to 4%, even though Trump has been threatening to cut off trade with countries that have a trade deficit if interest rates aren't cut.

Trump has been pushing for rates to be set at 1% or lower, but Warsh and the Fed are focused on controlling inflation. The FOMC sets the price of money, interest rates, and when prices are rising too fast, they slow things down by ratcheting up rates.

The FOMC voted to boost the federal funds rate by 0.25 percentage points from 3¾% to 4%, which is the first increase in three years. Core inflation is running at 3%, well above the desired 2%, and a higher interest rate will help prevent even more damaging inflation.

The Fed's independence is crucial, as it allows them to act solely on behalf of the economy, balancing low interest rates with inflation and high interest rates to stall economic growth. The FOMC's decision was unanimous, with all 12 members agreeing that inflation is too high and has been for too long.