What we covered here:
- The Federal Reserve raised its benchmark interest rate as expected on Wednesday, marking a sharp policy turnaround for an economy increasingly shaped by the war in the Middle East.
- This is the first rate hike since 2023 and is designed to cool spending and prevent inflation from becoming more entrenched. But it also means higher borrowing costs for Americans already struggling to afford homes, cars and other big-ticket purchases.
- Stocks fell, with the Dow seeing its worst day in nearly a month, while the 10-year Treasury yield moved back to its highest level since 2007 as markets digested Fed Chairman Kevin Warsh’s remarks.
- Raising rates could weaken an economy that is already showing signs of strain, increasing the risk that the Fed’s inflation fight could come at the expense of economic growth.
- The decision to raise rates was unanimous among the Fed’s rate-setting committee, including Warsh, who was handpicked by President Donald Trump with the aim of lowering rates. The president earlier this year joked he would sue Warsh if he did not.
Our live coverage of the Federal Reserve’s latest decision on interest rates has ended. More analysis can be found here.
Trump says interest rates should be "1%, or less"
President Donald Trump, in his first comments since the Federal Reserve raised its benchmark interest rate earlier Wednesday, again argued rates should be lower.
“Interest Rates in the United States should be 1%, or less, because we are the Best Credit in the World — BY FAR. Our Country is BOOMING with new Investment!” Trump wrote on Truth Social.
“If we stopped Trading with every country that we have a Deficit with, which is most of them, we would make, at least, 1.5 Trillion Dollars a year. The word ‘Deficit’ is nothing more than a fancy word for LOSS. We are ‘carrying’ almost every country in the World, and that cannot go on any longer. LOWER THE INTEREST RATES FOR THE UNITED STATES OF AMERICA, AND FAST!” Trump added.
The president has long pushed for lower rates, and he threatened earlier this month to prevent the US from trading with many nations unless the Federal Reserve lowered them.
He stopped short of criticizing Federal Reserve Chairman Kevin Warsh directly in his Wednesday post. Earlier in the day, Warsh declined to weigh in when asked about the president’s pressure campaign.
Trump responds to first rate hike since 2023
During his press conference on Wednesday after announcing the first rate hike in three years, Federal Reserve Chairman Kevin Warsh refused to address the question on many people’s minds: How will President Donald Trump take the rate hike news?
“I don’t have anything for you on discussions with the president. And I am not a Wall Street newsletter,” Warsh told reporters Wednesday. He went on to share his commitment to the Fed’s longstanding independence from political actors.
It wasn’t long before Trump had an answer.
“LOWER THE INTEREST RATES FOR THE UNITED STATES OF AMERICA, AND FAST!” the president wrote on his social media platform Wednesday afternoon. “Interest Rates in the United States should be 1%, or less, because we are the Best Credit in the World — BY FAR.”
Trump has been quite vocal about his desire for getting rates lower and even hand-selected Warsh with the intent of having him do so. Instead, Warsh was one of 12 officials who authorized a hike.
Trump, though, has also previously said he trusts Warsh to do what’s best for the economy.
How the rate hike will affect your finances
The effect of the Fed’s decision on your savings and debts – which also may be affected by higher yields on the 10-year and other Treasuries – will vary.
If you’re already in a fixed-rate bank savings product like a certificate of deposit, or a fixed-rate loan such as a home equity or auto loan, you won’t see any changes. Those rates are locked in. (Ditto if you own individual Treasury bonds and do not plan to sell them before maturity.)
But if you plan to put money into a new savings vehicle or take out a new loan in the coming months, you will soon start seeing changes in the rates on offer. The same is true for any money you currently have that is tied to variable-rate products like a high-yield savings account or credit card.
The speed at which those bank rates will change, however, won’t be uniform. Generally speaking, the biggest banks may move fastest to raise the rates they charge borrowers and slowest to raise the rates they pay savers.
Smaller community banks and online banks, however, may be quicker to respond to a hike in the Fed funds rate to the benefit of savers. That’s especially the case if they’re seeking to attract more in deposits so they can make more loans, said Patrick Ryan, president and CEO of First Bank.
Read more here for a breakdown of how the Fed’s latest decision may affect different types of savings and debts and where you might find the best rates going forward.
Stocks drop, bond yields climb after Fed hikes rates
Stocks fell, bond yields moved higher and the US dollar surged Wednesday afternoon after the Federal Reserve raised interest rates for the first time since 2023.
The S&P 500 fell 0.45%, turning into the red in the afternoon. The Dow tumbled 631 points, or 1.21%. The tech-heavy Nasdaq fell 0.01%, giving up gains after rising as much as 0.9% earlier.
The major indexes notched their third straight day of losses, and are down seven out of the past eight trading sessions.
Bonds initially rallied ahead of the Fed decision, driving yields lower. But after the Fed rate hike and Chairman Kevin Warsh’s remarks, bonds sold off and yields moved higher. Yields rise when bond prices fall.
The key 10-year Treasury yield dipped as low as 4.94% earlier before rising and closing at around 5.01%, its highest level since 2007.
The two-year Treasury yield, which tracks expectations for Fed policy, surged seven basis points and closed at its highest level in over two years. The 30-year yield pared declines but remained slightly lower on the day, signaling confidence in the Fed’s credibility.
The US dollar index surged more than 0.65% and was set for its best day since June, boosted by the Fed rate hike and Warsh’s discussion of robust economic growth and a commitment to fighting inflation.
Stocks had also dropped after Warsh’s press conferences following Fed decisions in June and July. The S&P 500 closed lower by 1.21% after the June rate decision and dropped 1.52% after the July rate decision.
“Stocks either don’t like his messaging or don’t like his message,” Steve Sosnick, chief strategist at Interactive Brokers, told CNN. “It’s hard to tell how much of it is [Warsh’s] style, how much of it is substance.”
“All in all, if you’re going to fight inflation, it comes with a cost, and this is the type of cost that we have to bear,” Sosnick said.
How would a series of rate hikes impact the labor market?
This low-churn labor market hasn’t been easiest for folks to find work, but unemployment has been low enough and the job gains have been strong enough to give the Federal Reserve some breathing room to consider hiking rates.
“The labor market’s been hanging on, and there hasn’t been net negative job growth, and so I am less concerned about this interest rate change pushing us into a labor market recession,” said Tyler Schipper, associate professor of economists and data analysis at the University of St. Thomas in St. Paul Minnesota.
If a rate hike or multiple rate hikes are successful in tamping down inflation, that could ultimately benefit the labor market, he added.
However, tighter monetary policy doesn’t come free of risks. It makes loans more costly for consumers and businesses, and it also raises interest rates for those carrying credit card debt – dampening spending power in the process.
One of the biggest risks could be raising borrowing costs for the massive amount of investments being made in artificial intelligence-related infrastructure, he said.
“Some of these companies have revenue streams outside of AI that makes it less worrisome, but the amounts that we’re talking about are still large, and a stock market correction at this point would have the ability to upset a lot of consumption spending in the real economy,” he said.
Dow drops 650 points after Warsh's remarks. Here's how markets are moving
Stocks turned lower, long-term bond yields pared declines and the US dollar surged Wednesday afternoon as markets digested the Federal Reserve’s rate hike and Chairman Kevin Warsh’s remarks.
The S&P 500 gyrated while Warsh highlighted the central bank’s commitment to reining in inflation and said underlying economic growth is strengthening.
The S&P 500 gave up gains and turned into the red before climbing again – and then dropping into the red again. The S&P was down 0.5% heading into the closing bell.
Meanwhile, the Dow tumbled by 650 points, or about 1.25%. The Dow was also weighed down by a 4% drop in Goldman Sachs, which fell after a report that CEO David Solomon warned during a conference on Wednesday of business higher costs this quarter.
The Nasdaq Composite was down 0.1%, giving up earlier gains.
“The plain fact is that inflation is too high, and has been for too long,” Warsh said. “This summer’s inflation readings do not tell me that underlying trends have meaningfully improved.”
The US dollar index surged about 0.6%, jumping right after the Fed rate decision and getting a boost from the unanimous decision to hike rates. The two-year Treasury yield rose six basis points, boosted by expectations for another rate hike before year-end.
The key 10-year Treasury yield pared some earlier losses and traded around 5.01%, up slightly on the day. The yield, which sets borrowing costs across the economy, is at multi-year highs.
Gold futures turned into the red and fell 0.6%, under pressure from the rate hike and market expectations for another before year-end. Higher yields can lessen gold’s appeal for investors.
Catch up on our Fed live analysis chat
CNN experts discussed the Fed’s interest rate hike and Kevin Warsh’s press conference as it happened. Read their conversation here.
Here’s what housing market experts think of the Fed’s decision to hike interest rates
The housing market is one of the most interest-rate-sensitive sectors in the economy. Here is the initial reaction to the Federal Reserve’s rate hike from housing market experts:
- Eric Orenstein, senior director at Fitch Ratings: “Mortgage rates have been rising since March in anticipation of today’s Fed actions, now at their highest level in over a year. This will certainly slow home purchases and mortgage refinancing through the rest of the year, pressuring mortgage company profitability.”
- Chen Zhao, head of economics research at Redfin: “Based on today’s meeting, mortgage rates are likely to stay high for the foreseeable future as the Fed will keep hiking. That will keep some buyers on the sidelines, but the good news for the housing market is that economic fundamentals remain strong, as the Chairman mentioned, which puts a floor on housing demand.”
- Jeffrey Ruben, president of WSFS Home Lending: “Higher rates can put upward pressure on mortgage rates, but the bond market is the thing to watch. What happens with the 10-year Treasury, now near 5%, will tell us more about where mortgage rates head next than the Fed’s short-term hike alone.”
- Danielle Hale, realtor.com chief economist: “The pressure on mortgage rates was here even before the Fed rate hike, and it doesn’t show signs of relenting. The higher rate environment is a marked contrast to fall 2025, when rates dropped below 6.5%, and likely means less year-over-year momentum in home sales in the last quarter of 2026.”
- Bill Banfield, chief business officer at Rocket Mortgage: “We have a solid economic foundation for housing, even as elevated rates squeeze affordability, especially for first-time homebuyers. For anyone house hunting right now, it’s a buyers’ market in many metros, with inventory at a six-year high and plenty of room to negotiate.”
Warsh: Today's rate hike was about making sure price increases don't broaden
Federal Reserve Chairman Kevin Warsh acknowledged that the central bank has no real capability of cutting off the main source of inflation: higher energy prices.
“We cannot affect any individual price, whether it be oil prices, whether it be food,” he told reporters on Wednesday.
Instead, he said Wednesday’s quarter-point rate hike was about helping ensure price increases don’t broaden out much further than that.
One of the reasons why the Fed’s preferred inflation gauge is the Personal Consumption Expenditures price index is because it is seen as having a wider lens of the pricing picture compared to the Consumer Price Index. In particular, officials are paying attention to an underlying measure of inflation, known as “core inflation,” which strips out food and energy prices
Stocks, bonds are little changed after Fed hikes rates as expected
Stocks were slightly higher and bond yields were little changed after the Federal Reserve announced it raised interest rates by a quarter point, matching expectations.
The Fed rate hike is the first since 2023, and comes in response to stubborn inflation and signs of a resilient economy and labor market.
“While uncertainty remains elevated owing, in part, to geopolitical developments, domestic spending has been resilient,” the Fed said in a statement.
“Inflation remains elevated,” the statement read. “Today’s policy action will support a timelier return to the Committee’s 2 percent goal. The Committee will deliver price stability.”
The S&P 500 was up 0.5%. The Dow hovered around the flatline. The tech-heavy Nasdaq Composite rose 0.9%.
Treasury yields, which were lower ahead of the Fed meeting, were little changed.
The Fed’s rate hike, which was a unanimous decision, matched market expectations. Traders had been pricing in a 93% chance of a rate hike, according to CME FedWatch, a real-time forecasting tool.
“Market participants are applauding Wednesday’s hike from a Fed credibility perspective, as Chair [Kevin] Warsh has spoken hawkishly in recent months about inflation and investors have been looking for more action from the Fed on inflation,” Alex Guiliano, chief investment officer at Resonate Wealth Partners, said in a note.
The bond market bullied the Fed into a hike. Now it hopes it didn't screw up
The bond market had a message for the Federal Reserve: Raise rates, or we will.
In anticipation that the Fed would hike rates to combat rising inflation, bond yields have surged in recent days and weeks. At one point Tuesday, the benchmark 10-year yield hit its highest rate since 2007 – during the Global Financial Crisis.
Bond investors have been egging on the Fed for months and lost patience with Fed Chairman Kevin Warsh six weeks ago after he failed to convince markets that he was taking the inflation threat seriously. It raised fears that the Fed had lost “credibility” – marketspeak for trust that the Fed will follow suit on its dual mandate to keep inflation and unemployment in check.
If the Fed hadn’t raised rates, the bond market probably would have gone haywire and risked pushing yields even higher, and causing more pain for borrowers.
But the Fed is trying to hit a moving target, and its rate tool is a blunt instrument. By raising rates, it can unintentionally hurt the economy and weaken a fragile hiring market.
And rate hikes might not be able to slow inflation, anyway. That’s because the bulk of inflation has been caused by rising energy prices, a direct effect of the Iran war and Ukraine’s attacks on Russian diesel refineries. That makes them immune to rate hikes.
The Fed did what markets had come to expect. The bond market bullied it into submission. Rates are fading backward a bit. If it hadn’t acted, the Fed could have done significant damage to markets.
But by raising rates, the Fed may also hurt the economy with nothing to show for it.
Fed officials are largely united, believing further rate hikes needed
Federal Reserve officials foresee hiking interest rates by a quarter point at least one more time this year, according to the median forecast in the newly released quarterly Summary on Economic Projections.
Four of the 18 officials who submitted forecasts believe rates will need to be a half point higher by year’s end. Two believe the Fed will not need to hike again.
In the past all 19 Fed officials – 12 of whom are regional Fed bank presidents and nine are on the Fed’s Board of Governors – submitted these projections. But the June and September forecasts included 18 submissions.
Chairman Kevin Warsh said at June’s monetary policy meeting he did not submit a projection because he does not want to be bound to what is essentially an estimate.
It’s all but certain that his forecast is the missing one this time around, too.
Warsh just defied Trump
President Donald Trump appointed Chairman Kevin Warsh with the intent of getting lower rates. But the man he handpicked to lead the world’s largest economy just voted for a rate hike just a few months into the role.
Warsh, along with all other 11 voting Federal Reserve officials, were aligned on the need to raise interest rates by a quarter point on Wednesday.
In the recent past, when the Fed has changed course, there have been dissents, so it’s notable that in this instance there were none.
The Fed raises interest rates for the first time since July 2023
The Federal Reserve on Wednesday raised interest rates for the first time in more than three years in a renewed fight against inflation, which has picked up since early in the year due to the war with Iran.
Officials voted to raise their benchmark lending rate by a quarter point to a range of 3.75-4%, undoing one of last year’s three rate cuts.
The decision comes after months of a disruptive war in the Middle East that has roiled energy prices and threatens to make inflation more persistent and widespread. Officials are also worried about the potential inflationary impact of the massive AI buildout.
Wednesday’s decision marks the first big move on interest rates under new Fed Chairman Kevin Warsh. The rate hike could put him at odds with President Donald Trump, who appointed him after repeatedly pressuring the central bank to lower rates.
The Fed's (likely) new chapter begins in about 5 minutes
The Federal Reserve is poised to embark on a new chapter in five minutes’ time, shifting gears with what could be its first interest rate hike in three years. If that indeed occurs, history shows more hikes will soon come, too.
The Fed is set to announce its interest rate decision at 2 p.m. ET as well as release forecasts on where officials believe rates will be in the coming months and their views on other economic conditions.
At 2:30 p.m. ET, Chairman Kevin Warsh will hold a press conference.
Be sure to follow along for live analysis and explanations on what the Fed’s latest move means.
The Fed's big dilemma
When the Federal Reserve decides it needs to change the current level of interest rates, its decision is not based on how the economy is performing today but on how central bankers believe it will perform in the future.
That’s because interest rate changes take time to work their way through the economy. By some estimates, the full effects can take one to two years to materialize.
Waiting too long to act can mean missing the window for a rate change to have its intended effect.
With inflation now expected to worsen as a result of energy-related effects from the war with Iran, even the smallest upticks in the latest data carry outsized weight for the Fed.
Most former Fed officials endorse a rate hike today
Even as Goldman Sachs and others question the logic behind raising interest rates, the vast majority of Federal Reserve insiders in a new survey say the Fed should hike.
Out of 32 former Fed governors, regional presidents and staffers, 29 endorsed a rate hike, two didn’t answer and one said the Fed should stay on hold, according to a Duke University poll conducted by former Wall Street Journal “Fed whisperer” Jon Hilsenrath.
“The Fed and new chair’s credibility is on the line,” one former Fed official said.
None of the former officials backed a rate cut, which is what President Donald Trump wants. But they also didn’t project dramatically higher rates.
Stocks are slightly higher heading into Fed rate decision
Stocks were up slightly with just 20 minutes to go until the Federal Reserve’s decision on interest rates, set to be announced at 2 p.m. ET.
The S&P 500 rose 0.3%. The Dow rose 40 points, or about 0.1%. The Nasdaq Composite gained 0.6%. Wall Street’s fear gauge, the VIX, was down 2%.
Treasury yields were lower, pulling back one day after the key 10-year yield hit its highest level since 2007. Oil prices were down about 3% on Wednesday, easing pressure on bonds. The drop in oil and yields also gave a boost to stocks.
Elsewhere in markets, the US dollar index was up 0.1%. Gold futures rose 1.2%.
Now, traders await the Fed’s decision at 2 p.m. ET followed by remarks from Chairman Kevin Warsh scheduled for 2:30 p.m.
“There’s a really solid expectation that Chair Warsh delivers a 25 basis point hike, so I would be astonished if he didn’t,” Padhraic Garvey, head of global rates and debt strategy at ING, told CNN.
“That’s what makes this meeting intriguing, because there’s a world where he could do nothing. That would be quite a statement. There’s a world where he could do [a] 50 [basis point hike]. That’s also a statement. And another world where he does 25,” said Garvey, who expects the Fed will deliver a 25 basis point hike.
The Fed rate decision is decided by vote among 12 policymakers at the central bank. But the chairman, who has one vote, is tasked with building consensus and is responsible for communications directly following the rate decision announcement.
Fed Chairman Kevin Warsh's credibility remains in question
Investors are still making sense of this new era at the Federal Reserve, which includes whether Chairman Kevin Warsh has the “credibility” to lead the central bank’s fight against inflation.
Since beginning his term in May, Warsh has cut back on giving financial markets any signal on where interest rates are heading. That’s a dramatic shift from how the Fed’s leader has traditionally operated since the early 2000s. The point, he has said, is to get markets to “play the ball, not the referee,” meaning market moves should reflect economic data and not what Fed officials are signaling.
But that hasn’t sat well with some investors, who say Warsh’s silence reflects a lack of commitment to hike when it seems necessary. In central banking, “credibility” is basically synonymous with being “committed” to doing the job, even if it may not be politically popular. President Donald Trump, who handpicked Warsh, continues to pound the table for rate cuts, even though inflation remains well above the Fed’s 2% target.
Warsh regained some credibility in his keynote speech at the Federal Reserve Bank of Kansas City’s annual economic symposium last month, in which he finally signaled that rate hikes are on the table by saying there’s more “work to do” in fighting inflation.
“We were encouraged by Warsh’s speech. But talk is cheap,” Bank of America economists wrote in commentary issued after Warsh’s speech. “The onus is now on him to deliver a hike in September.”
