Fed Hikes by 25 bps to 3.75%–4.00%, Citing Inflation Risks, Geopolitics and AI

The Federal Reserve on Wednesday raised its policy rate by 25 basis points, lifting the target range for the federal funds rate to 3.75%–4.00% in a unanimous FOMC decision. The move marks the first rate increase since July 2023. The updated dot plot shows 16 officials anticipating at least one additional hike by 2026. The median projection for the policy rate in both 2026 and 2027 stands at 4.1%. Markets turned choppy after the announcement. Bitcoin, which had already absorbed much of the negative news, extended its recent run and continued to trade as a relative bright spot. In a post-meeting press conference, Fed Chair Wash framed the decision as a step toward reinforcing price stability at a time when inflation remains exposed to energy-driven shocks and rising geopolitical uncertainty. Wash said the Fed cannot control individual prices such as oil or groceries. Its job, he argued, is to prevent relative price moves from cascading into broader, persistent inflation through second- and third-round effects. Asked whether the Fed was locked into a typical series of hikes once tightening begins, Wash declined to offer forward guidance. He described the decision as "cautious, serious, and responsible," adding he would not prejudge future meetings and would remain focused on what incoming trends show. On the view that markets had priced a roughly 90% probability of a hike, Wash rejected the idea that the Fed was following markets. He said policymakers watch market signals but set rates based on their own assessment of employment, growth and overall conditions. Pressed on what the decision means for consumers—and what message he had for President Trump, who has repeatedly called for rate cuts—Wash declined to discuss any conversations with the president. He said those "least financially secure" benefit most from price stability and that the economy's underlying strength, with conditions near full employment, gives the Fed room to prioritize inflation control. Wash pointed to three developments since the prior meeting: broadening evidence of stronger growth, an inflation trend he said "failed the test" over the summer, and a deterioration in the geopolitical backdrop that has shifted the range of plausible outcomes. On financial conditions, Wash said he and colleagues have found it difficult to describe the stance as "restrictive." He characterized the move as withdrawing some accommodation to better align financial and credit conditions with the Fed's goals. Asked to define the funds rate relative to the neutral rate—and whether he thinks in terms of short- and long-run neutral—Wash answered "No," calling the concept academically useful (referencing the "Wicksellian rate") but not operationally decisive for current policy decisions. Wash criticized markets' tendency to fixate on single data releases such as CPI, arguing "trends matter" and individual data points are noisy. On Fed independence amid political pressure tied to trade policy, Wash said he would not comment on discussions with the president. He described independence as "two-way," adding the Fed also expects officials responsible for trade and fiscal policy to stay in their lane. Wash defined the "least well-off" as households with little to no financial assets—no home equity, no 401(k) holdings—who rely on paychecks. With the economy broadly near full employment, he said the Fed can focus on price stability so real incomes can grow. On foreign central banks, Wash said he would not speculate on others' decisions. He noted that in conversations at Jackson Hole, a G20 gathering in North Carolina, and meetings in Basel, counterparts in advanced economies also reported price pressures and policy choices guided by their own mandates, with spillovers running in both directions. Addressing a question about past remarks warning the Fed risked making another major mistake, Wash said inflation is now the central problem, arguing price stability has been missing for more than five and a half years. The Committee, he said, acted to return more promptly to its inflation goal. With long-term Treasury yields rising in recent months, Wash cited three drivers: stronger growth, "capital competition" as hyperscale data-center operators raise substantial funding amid an investment boom, and geopolitics. He said global hotspots are lifting term premiums and feeding through beyond spot commodity prices into broader goods costs. Asked to reconcile his push for faster progress toward 2% inflation with the Summary of Economic Projections showing the median timeline for reaching 2% pushed out to 2029, Wash said those forecasts belong to his "18 colleagues," not him. He reiterated he does not provide forward guidance and emphasized the Fed's commitment to deliver price stability "more promptly." On artificial intelligence, Wash said the Fed is closely tracking AI's implications for demand and, eventually, supply. He proposed establishing a special task force to produce a report by year-end, while stressing that broader AI risk and regulatory choices belong to other parts of government. Finally, asked whether taming inflation driven by energy prices and tariffs would require pushing growth below potential and weakening the labor market, Wash said he does not believe the Fed needs to damage employment to achieve its goals. He argued the two parts of the mandate—maximum employment and price stability—are not in conflict over the medium term and that restoring price stability supports "continuous, sustainable, and durable" growth, especially for those least well-off.