Key interest rate in the USA: US Federal Reserve Bank raises key interest rate for the first time since 2023

afp | The US Federal Reserve (Fed) has raised its key interest rate for the first time in over three years - thereby inflicting a defeat on President Donald Trump. The Fed raised the relevant interest rate by 0.25 percentage points on Wednesday; it is now in a range between 3.75 and 4.0 percent. Trump reacted angrily and called for an interest rate cut again – “and quickly!”

It is the first key interest rate increase in the USA since July 2023, and the decision was made unanimously by the twelve responsible Fed members. “Inflation is too high, and has been for far too long,” said central bank chief Kevin Warsh as justification.

Trump put his confidant Warsh at the head of the central bank in May so that he could ensure the desired low interest rates, which would make real estate loans cheaper. However, the Iran war that Trump helped trigger a good six months ago is massively driving up energy prices and thus also inflation. Regardless, the president wrote on his online service Truth Social on Wednesday that interest rates in the US “should be 1 percent or less.”

When asked about his message to Trump in front of journalists, Warsh responded with a laugh - and said he couldn't say anything about it. But he has a message for US citizens: “The least wealthy benefit most from stable prices,” said the 56-year-old. “Our decision today was the right one.”

Warsh explained that consumer price increases in the USA have been above the target of 2.0 percent for “more than five years.” In July and August the inflation rate was 3.4 percent. The labor market, however, is stable. Unlike the European Central Bank (ECB) in Frankfurt am Main, the Fed has a dual mandate: to ensure stable prices and a robust labor market.

Trump recently threatened the Fed: “Lower interest rates or I will stop trading with countries with which we have a deficit.” Such a trade deficit exists with Germany or Switzerland, for example; the USA imports significantly more from both countries than it exports there.

Now the 80-year-old president added in his new message: "If we stopped trade with all countries with which we have a deficit - and that's most of them - we would earn at least $1.5 trillion a year." He did not explain the connection between a trading stop, possible revenue for the USA and the central bank.

Wall Street posted losses after the Fed decision. The leading index Dow Jones fell by 1.21 percent at the close of trading. Although traders had expected the Fed's decision, there could be another interest rate increase against Trump's wishes by the end of the year. The majority of central bankers expect this, as can be seen from an economic forecast also published by the Fed on Wednesday.

The independence of the US Federal Reserve from politics is one of the basic principles of its work. Trump has repeatedly questioned this since he took office again in January 2025.

Warsh was combative - like his disgraced predecessor Jerome Powell: "Part of the independence of the Federal Reserve is that we mind our own business," said the Fed chief. Those responsible for trade and financial policy should do the same, Warsh advised.