Fed Raises US Interest Rate to 4% as Trump Demands 1% Cut
US interest rates climbed to a range of 3.75% to 4% after the Federal Reserve delivered its first rate hike in over three years, triggering an immediate pushback from US President Donald Trump, who demanded borrowing costs drop to 1% or less. Financial institutions and regional regulators adjusted swiftly to the Washington decision, prompting the UAE Central Bank to raise its base rate to 3.9% following the announcement.
The Federal Open Market Committee voted unanimously 12-0 to raise the benchmark federal funds rate by a quarter of a percentage point on September 16, 2026, marking a sharp pivot from earlier expectations that the central bank would reduce borrowing costs this year. Fed Chair Kevin Warsh defended the tightening cycle, pointing out that inflation remains elevated above the central bank’s 2% target. Policymakers face compounding pressures from energy markets, where ongoing conflict involving the US, Israel, and Iran has disrupted fuel supplies and driven up energy costs.
The central bank’s updated projections place the median federal funds rate at 4.1% by the end of 2026, holding steady through 2027 before declining to 3.9% in 2028. These estimates place monetary authorities directly at odds with Trump, who insisted in a public post that the United States possesses the best credit in the world and deserves a benchmark rate of 1% or less. Trump further contended that the US economy is expanding rapidly and claimed the nation could generate at least $1.5 trillion a year by terminating trade agreements with countries carrying deficits.
Despite the political pressure, Federal Reserve officials expect the economy to absorb the tighter monetary policy. Current projections estimate economic growth at 2.3% for 2026, with unemployment hovering near 4.1% and personal consumption expenditures inflation expected to average 3.7% before cooling to 2.3% in 2027 and 2.1% in 2028.
