Fed Raises Rates Unanimously as Warsh Cites Persistent Inflation
By Jacqueline Policastro | Quincy News Correspondent
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Washington (Quincy News) — The Federal Reserve raised interest rates by a quarter percentage point Wednesday in a unanimous vote, delivering its first rate increase in more than three years, as Chair Kevin Warsh cited persistent inflation and a strengthening economy.
The Federal Open Market Committee voted 12-0 to raise its benchmark federal funds rate to a range of 3.75% to 4%. The Fed said economic activity continues to expand at a solid pace, while inflation remains elevated and the move would support a “timelier return” to its 2% goal.
The consensus marked a sharp shift from July, when policymakers voted 9-3 to hold rates steady and three regional Fed presidents favored an immediate quarter-point increase.
Warsh said three developments changed the Fed’s calculus over the seven weeks since that meeting. Evidence that the economy has strengthened, inflation trends that have shown little meaningful improvement, and a changed geopolitical environment. He said the economy is operating roughly at full employment, allowing the Fed to put its “predominant focus” on price stability.
“The plain fact is that inflation is too high and has been for too long,” Warsh said.
Projections Point to Additional Rate Increase
The Fed’s new projections offered a notably firmer outlook for interest rates. The median policymaker now sees the federal funds rate at 4.1% at the end of both 2026 and 2027, up from June projections of 3.8% and 3.6%. Sixteen of the 18 officials submitting forecasts project at least one additional quarter-point increase by year-end, while four project two more hikes.
Officials also raised their median 2026 GDP forecast to 2.3% from 2.2%, lowered their unemployment forecast to 4.1% from 4.3%, and nudged their PCE inflation projection higher to 3.7% from 3.6%.
Warsh did not submit an individual economic or rate projection and repeatedly distanced his own assessment from the Summary of Economic Projections.
“Those aren’t my forecasts,” Warsh said when pressed on why the median projection does not show inflation returning to 2% until 2029. “Those are the forecasts of my 18 colleagues.”
Warsh also sharpened his explanation of what it means for this Fed to watch incoming information. Trends matter, he said, but individual reports should not dictate policy.
“I was not waiting breathlessly” for either the latest retail sales report or last week’s CPI, Warsh said. “Data point dependence is a dangerous preoccupation,” he added.
Energy Prices, Global Rates and AI
When asked how higher interest rates could help when they cannot reopen the Strait of Hormuz or directly increase energy supplies, Warsh acknowledged the limits of monetary policy.
“We cannot affect any individual price,” he said. The Fed’s job, he said, is to prevent individual price shocks from spreading into broader second- and third-order inflation effects.
Warsh also noted that the U.S. is not alone. After recent meetings with other central bankers, he said most advanced economies are also confronting price pressures. Rate decisions by foreign central banks can have “spillovers and spillbacks” into the U.S. economy, though he declined to predict what other central banks will do.
Artificial intelligence also surfaced as a significant policy question. Warsh said the Fed has established a task force expected to report by the end of the year on AI’s implications for both supply and demand.
But he again returned to the Fed’s boundaries. Broader decisions about the risks and regulation of AI belong to other parts of government, he said.
Warsh repeatedly framed the inflation fight around households with the fewest financial cushions, saying Americans who do not own significant financial assets feel rising prices most directly.
“Those who are least well off have the most to gain from a durable expansion, a solid labor market, and stable prices,” he said.
Changes to the Fed Press Conference
The changes under Warsh were visible in the press room itself Wednesday.
Reporters were seated by outlet in alphabetical order, a break from the previous arrangement, and the Fed instructed journalists to ask one question rather than multipart questions so Warsh could get to more people. The result was a noticeably faster, more rapid-fire news conference.
Markets initially took the widely anticipated hike in stride before closing lower. The S&P 500 fell about 0.5%, the Dow declined 1.2% and the Nasdaq was little changed. The 10-year Treasury yield settled at about 5%.
The Fed’s next policy meeting is scheduled for October 27-28.
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