US Fed hikes interests rates to curb inflation in move likely to rile Trump

US President Donald Trump has called for interest rates to be lowered after the Federal Reserve raised rates in the world's largest economy by 25 basis points.

The Fed's Federal Open Market Committee voted unanimously on Wednesday, local time, to raise rates to between 3.75 and 4 per cent, citing "elevated" inflation and adding that the rate hike would support a "timelier return" to its 2 per cent target for the metric.

Mr Trump responded to the rate rise saying they should be 1 per cent or lower, and should be reduced quickly.

"We are the Best Credit in the World — BY FAR. Our Country is BOOMING with new Investment!," he posted on social media.

The majority of Fed policymakers expect at least one more rate hike to be necessary before the end of the year, according to the central bank's Summary of Economic Projections, also published on Wednesday.

In a press conference after the rate hike announcement, Fed chair Kevin Warsh said the US economy had strengthened since the last Fed meeting, but the inflation trend had shown little improvement.

The US economy has been dealing with years of higher-than-target inflation, and prices have surged in the wake of Mr Trump's war on Iran, his signature tariff policies and the ongoing AI boom.

The Fed has held rates steady since January, choosing to wait to gauge the effects of energy price shocks and to let the impact of tariffs on prices ripple through the economy.

JP Morgan's global head of economic research, Bruce Kasman, said market expectations surrounding interest rates had shifted across the developed world since the beginning of the year.

"Central bankers are now on the move, and markets anticipate them to hike a cumulative 100bp through mid-2027," he wrote following the Fed's unanimous rate hike decision.

He added each developed market central bank, except for Norway, was expected to deliver a cumulative interest rate hike of at least 75 basis points.

Since the end of last year, the Reserve Bank of Australia (RBA) has increased interest rates by that amount.

The RBA is expected to make its decision on interest rates on September 29.

"The Taylor rule suggests that no material tightening is needed in Canada, Australia, or the UK," he wrote.

The Taylor rule is a widely used economic tool to determine whether interest rates are too low, too high or about right for current economic conditions.

The Fed's decision highlighted the struggle central banks faced taming inflation, according to Tapas Strickland, chief market strategist for share trading platform Moomoo Australia and New Zealand.

"The Fed lifted the target range to 3.75% to 4.00%, pointing to resilient household consumption, capital investment, and productivity," Mr Strickland wrote.

"Hawkish messaging saw markets lift their pricing of hikes even further, now pricing in three more hikes by mid-2027."

Mr Strickland added the increase to rates in the US was expected to have an impact on local equity markets.

"Higher US benchmark borrowing costs inevitably transmit straight into Australian debt markets, tightening financial conditions, lifting bond yields, and testing local equity valuations," he wrote.

The Fed last raised rates in 2023, when the central bank was still battling post-pandemic inflation.

The fresh hike will be sure to anger Mr Trump, who has launched an unprecedented campaign to pressure the independent central bank to lower rates to spur economic activity.

The Trump administration launched a criminal probe against Mr Warsh's predecessor, Jerome Powell — whom the president regularly insulted and berated — and is still trying to fire Fed governor Lisa Cook.

On Tuesday, key Trump economic advisor Kevin Hassett advocated against a rate hike but said the White House would "understand and respect the decision".

Mr Warsh was named to his position after a contentious Senate confirmation process, where Democratic senators accused him of being a "sock puppet" for Mr Trump, which he denied.

So far, Mr Trump has supported Mr Warsh, claiming that the Fed chair wants lower rates and accusing the board of being "political".

The Fed has a dual mandate to deliver maximum employment while keeping inflation to its long-term 2 per cent target.

It mainly achieves these goals by setting the key US interest rate. Lower rates tend to spur economic activity but fuel inflation, and higher rates cool both activity and prices.

The Fed's SEP showed that at least 12 of 18 policymakers who participated in the projection expected at least one more rate hike before the end of the year.

Four policymakers expect two more rate hikes.

Mr Warsh has criticised the Fed's policy of offering such projections in the past and did not participate in the previous iteration in June.

This projection also included only 18 policymakers, suggesting he had once again withheld his contribution.