Trump Calls for Lower Rates as Fed Lifts Borrowing Costs
US Federal Reserve raises rates by 25 basis points as persistent inflation keeps policymakers focused on tighter monetary policy
The US Federal Reserve has raised interest rates by 25 basis points, lifting its target range to 3.75%-4%, as policymakers continue to respond to inflation that remains above the central bank’s 2% target.
The decision came despite renewed calls from US President Donald Trump for significantly lower interest rates. Mr Trump argued that rates should be reduced quickly, saying the strength of the US economy justified lower borrowing costs.
The Federal Open Market Committee voted unanimously for the increase, with the Fed citing elevated inflation and saying the move would support a more timely return towards its 2% inflation objective.
Fed signals further rate increases
The latest decision also came with a more hawkish outlook for monetary policy. The Fed's Summary of Economic Projections showed that at least 12 of 18 policymakers expected at least one further rate increase before the end of 2026.
Four policymakers projected two additional increases.
Fed Chair Kevin Warsh said the US economy had strengthened since the previous meeting, while inflation had shown limited improvement.
"The plain fact is that inflation is too high and has been for too long," Mr Warsh said following the decision.
The comments suggest policymakers remain concerned about inflationary pressures even as the economy continues to show resilience.
Trump pushes for lower borrowing costs
The rate increase is likely to intensify the disagreement between the White House and the Federal Reserve over the appropriate direction of monetary policy.
Mr Trump has repeatedly called for lower interest rates, arguing that cheaper borrowing would support investment and economic activity. Following the Fed's decision, he again called for rates to move towards 1% or lower.
The Federal Reserve, however, continues to focus on its mandate of maintaining price stability alongside maximum employment. Higher rates are generally used to moderate economic activity and inflation, while lower rates can encourage borrowing and spending.
Global markets face higher-rate pressure
The latest US rate decision is also relevant beyond American markets. Higher US Treasury yields can flow through to global bond markets and influence borrowing costs in other developed economies.
According to market strategist Tapas Strickland, higher US benchmark borrowing costs could tighten financial conditions in Australia, lift local bond yields and place pressure on equity valuations.
The shift in global rate expectations has already affected forecasts for several developed-market central banks. J.P. Morgan's global head of economic research Bruce Kasman said markets were now anticipating cumulative rate increases across much of the developed world through mid-2027.
RBA faces renewed attention
The Fed's decision has also increased focus on Australia's own interest rate outlook.
Markets were pricing an 88% chance of an RBA rate increase in September, according to the report, with the central bank scheduled to make its next decision on September 29.
Betashares chief economist David Bassanese said the Fed's move could add pressure on the RBA, particularly as global and domestic inflation pressures remain elevated.
For Australian investors, the combination of higher US rates, rising global bond yields and expectations of further domestic tightening could remain an important influence on financial markets.
The latest developments underline the challenge facing central banks: policymakers are attempting to contain persistent inflation while navigating the potential effects of higher borrowing costs on households, businesses and financial markets.
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