Federal Reserve Hikes Rates Amid Stubborn Inflation
The Federal Reserve raised its benchmark interest rate for the first time in three years to combat stubbornly-high inflation. The quarter-point increase brings the key rate to about 3.9% and could result in higher borrowing costs for mortgages, auto loans, and credit cards.
The move comes as Americans struggle with high costs for groceries, gas, and housing. Affordability has become a leading issue in the upcoming midterm elections just seven weeks away.
Fed Chair Kevin Warsh's decision to raise rates defies President Donald Trump's calls for lower borrowing costs. In April, Trump said he would be disappointed if Warsh didn't cut rates, but Warsh told the Senate Banking Committee that he would be an independent actor as Fed chair.
Strong consumer spending and ongoing investment in AI have contributed to inflation, which was 3.7% in July compared with a year ago. The Fed's preferred measure of inflation has been accelerating since April 2025, when Trump unveiled sweeping tariffs.