Fed Raises Rates to About 4% Amid Trump Pushback, Markets Slip

The Federal Reserve raised the target range for the federal funds rate by a quarter point to 3.75%-4.00% at its September 15-16 meeting, its first increase in three years, on a unanimous 12-0 vote. Interest on reserve balances went to 3.90% and the primary credit rate to 4.00%, both effective September 17.

Chair Kevin Warsh, who took the role in May, used the post-meeting press conference to set a fairly demanding bar: the committee, he said, must be confident that underlying inflation is moving to its objective clearly and at sufficient speed. He did not promise further hikes, but the updated projections point to the possibility of one more in 2026, with the median year-end path near 4.00%-4.25%. Read together, the language and the dot plot are what justify describing the stance as open to tightening further rather than done.

The political backdrop is real but narrower than it looks. President Trump posted that he wanted rates at 1% or less, and the Fed moved the other way. He also said he still has confidence in Warsh, which is a more measured reaction than the one he directed at the previous chair, so this is a policy disagreement rather than an open rupture.

The market reaction was uneven and worth stating precisely rather than as a blanket selloff. Stocks held an early gain and turned lower during the press conference. The Dow Jones Industrial Average closed down 631 points, or 1.2%. The S&P 500 fell 0.4%. The Nasdaq Composite finished nearly unchanged, down less than 0.1%, so the index most exposed to duration barely moved. The 10-year Treasury yield rose 2 basis points to 5.016%, pushing above the 5% level.

The mechanism from here is the ordinary one: higher policy rates raise borrowing costs, compress the discount applied to long-duration earnings, and make fixed income relatively more attractive. What would change the picture is the inflation data between now and the next meeting, since Warsh has tied the committee's patience explicitly to the speed of disinflation rather than its direction.