The US Federal Reserve raised interest rates on Wednesday by 25 basis points as it continues efforts to curb persistent inflation, a move expected to intensify tensions with President Donald Trump, who has repeatedly called for lower rates.

The Federal Open Market Committee (FOMC) voted unanimously to increase the federal funds rate to a range of 3.75% to 4.00%, citing "elevated" inflation and saying the decision would support a "timelier return" to the central bank’s two-percent inflation target.

The Fed also indicated that further rate increases may be needed, with a majority of policymakers expecting at least one additional hike before the end of the year, according to the central bank’s latest Summary of Economic Projections.

Fed Chair Kevin Warsh is scheduled to address the decision during a press conference following the announcement.

Fed keeps focus on inflation as economic pressures continue

The US economy has faced years of above-target inflation, with prices rising amid the effects of Trump’s tariff policies, energy price shocks, and the expansion of artificial intelligence-related investment, according to economic analysts.

The Fed had kept interest rates unchanged since January while assessing the impact of tariffs and energy costs on consumer prices.

At its previous meeting in July, however, several voting members opposed maintaining rates, with some calling for an immediate increase.

August’s consumer price index came in at 3.4%, unchanged from the previous month but still significantly above the Fed’s long-term two-percent target.

The Fed also raised its forecast for its preferred inflation measure, the Personal Consumption Expenditures (PCE) price index, projecting it would reach 3.7% by the end of the year.

"Inflation has spread across the economy and is becoming embedded in consumer and firm behavior -- exactly what the Fed must prevent," Diane Swonk, chief economist at KPMG, said in a note before the decision.

The central bank also increased its projection for US GDP growth by the end of the year to 2.3%, up 0.1 percentage point.

Rate hike deepens tensions between Trump and the Fed

The latest interest rate increase is expected to anger Trump, who has launched an unprecedented campaign to pressure the independent central bank into lowering borrowing costs to boost economic activity.

The Fed last raised rates in 2023 while attempting to bring down inflation following the post-pandemic price surge.

The Trump administration previously launched a criminal investigation into former Fed Chair Jerome Powell, whom the president had repeatedly criticized, and has continued efforts to remove Fed Governor Lisa Cook.

On Tuesday, Trump economic adviser Kevin Hassett argued against a rate hike but said the White House would "understand and respect the decision."

Warsh was appointed Fed chair following a contentious Senate confirmation process, during which Democratic lawmakers accused him of being a "sock puppet" for Trump, an accusation he denied.

Trump has since supported Warsh, claiming the Fed chair favors lower rates and accusing the central bank of being "political."

Fed projects further rate increases ahead

The Federal Reserve’s dual mandate is to support maximum employment while maintaining inflation at its two-percent target.

The central bank uses interest rate adjustments as its main tool, with lower rates generally encouraging economic activity while higher rates are used to slow inflation.

The Fed’s latest projections showed that at least 12 of the 18 participating policymakers expected another rate increase would be necessary before the end of the year, while four policymakers projected two additional hikes.

Warsh has previously criticized the Fed’s practice of issuing economic projections and did not participate in the previous June forecast. The latest projection also indicated that he again withheld his contribution.