The US Federal Reserve has just reached a major turning point by raising its benchmark interest rate by 25 basis points, pushing it into a range of 3.75% to 4%. This decision, adopted unanimously by the twelve members of the FOMC, marks the institution's first monetary tightening since July 2023. At the helm, Kevin Warsh—despite being appointed Fed Chair by Donald Trump with the explicit hope of securing rate cuts—sprung a surprise by adopting a resolutely "hawkish" stance, in complete contradiction to White House expectations.
The primary driver behind this decision remains persistent inflation, which is struggling to recede toward the 2% target. Currently, the PCE index shows an annual increase of 3.7%, a figure fueled by surging industrial supply costs and a lingering oil shock tied to geopolitical tensions in the Middle East. For Kevin Warsh, the current level of interest rates cannot be considered sufficiently restrictive to effectively curb price dynamics, thus justifying the maintenance of a rigorous monetary policy despite external political pressure.
This situation places President Donald Trump in a delicate position, as he had publicly advocated for a benchmark rate near 1% to stimulate the economy. While the head of state avoided a direct confrontation with his protégé, he has sharply criticized the Board of Governors, viewing it as an obstacle to his economic vision. For their part, some analysts point out that the protectionist and tariff policies implemented by the current administration have themselves contributed to fueling the inflationary pressures the Fed is now trying to contain, creating a paradox where the central bank is correcting the effects of the executive branch's choices.
Financial markets reacted with caution to this signal of central bank independence. The dollar appreciated slightly, while short-term sovereign bond yields rose, reflecting expectations of higher rates for an extended period. The institution's credibility, which had been undermined by years of rising prices, appears to be Kevin Warsh's top priority. With the midterm elections only weeks away, FOMC projections suggest at least one more hike by the end of the year, confirming that the Fed's priority remains price stability, even at the expense of immediate electoral imperatives.