The Federal Reserve raised interest rates on Wednesday and signaled that borrowing costs could rise in the coming months, marking the first monetary-policy shift under its new chair, Kevin Warsh, amid continued inflationary pressures.
The decision was unanimous, while Warsh reiterated in remarks in Washington after its release the monetary policy committee’s pledge that it «will achieve price stability».
16 officials expect another increase
The new economic projections showed that 16 of the 18 officials expect at least one quarter-point rate increase by the end of this year, while two officials expect rates to remain at their current levels.
The monetary-policy statement and economic projections left the door open to continued tightening into next year, with the benchmark interest rate expected to reach a range of 4.00% - 4.25% by the end of this year and remain at the same level in 2027.
The decision marked the first monetary-policy shift since Warsh took over as Fed chair in late May, after being selected by U.S. President Donald Trump amid expectations that he would move to cut interest rates.
Stocks fall as dollar rises
Major U.S. stock indexes turned lower as Warsh’s news conference ended, with the S&P 500 falling 0.7% and the Nasdaq declining 0.3% after both had posted slight gains earlier, while the Dow Jones dropped 400 points following Warsh’s comments on inflation.
By contrast, the U.S. dollar index rose 0.6% to 100.25 as markets repriced the path of interest rates in light of the Fed’s more hawkish stance.
Treasury yields move in different directions
U.S. Treasury bonds posted mixed performance. The two-year Treasury yield, which is more sensitive to Fed expectations, rose 6 basis points to 4.725% after falling earlier. The 10-year Treasury yield climbed 1 basis point to 5%, while the 30-year Treasury yield fell 1.6 basis points to 5.347%.
