Fed doesn’t blink and raises interest rates

Susannah Streeter, chief investment strategist at Wealth Club, said: “In the showdown between the Fed and the White House, Fed Chair Kevin Warsh didn’t blink. Despite repeated calls by President Trump to cut, or at least hold, rates, the Federal Open Market Committee voted to raise the Fed funds rate by 0.25 percentage points. With consumer prices already heading higher and the energy crunch set to intensify, this is the first attempt to put the inflation genie back in the bottle.

“Kevin Warsh was stuck between a rock and a hard place. The choice was either to lead with the hike in rates and risk the potential wrath of the President or risk a fresh strop in the bond markets. The decision was a test of the Fed’s independence, and this move has strengthened the autonomy of the institution. But the tougher tone from Kevin Warsh sent pulses racing. Treasury yields initially dipped after the decision, as investors took some comfort from the Fed standing firm in the face of Donald Trump’s noisy demands for lower rates. But as the newish Chair made clear that the fight against inflation is far from over, expectations of further tightening have strengthened.

“With the war in Iran still entrenched and the AI infrastructure build-out adding to inflationary pressure, the inflation battle is far from over and markets are still bracing for further rate hikes.”