Fed Raises Rates to 3.75%-4% for First Time Since 2023; Trump Demands 1%

The US Federal Reserve voted unanimously on September 16 to raise its benchmark interest rate by 25 basis points to 3.75%-4%, marking the first rate increase since July 2023. Fed Chair Kevin Warsh said inflation has been “too high and for too long,” citing a strong economy and geopolitical tensions as justification. The decision immediately drew fire from President Trump, who called for rates to be slashed to 1% or lower. Hong Kong investors watching US monetary policy should note this shift signals tighter financial conditions ahead.

Why the Fed acted now after three years of cuts

The Fed cut rates aggressively in late 2025, lowering them by 75 basis points to support the economy. Inflation, however, has remained stubbornly above the central bank’s 2% target. Warsh emphasized that domestic spending remained resilient and the labor market stayed strong, creating room to tighten policy. Oil prices have surged due to Middle East tensions, pushing up fuel and goods costs across the economy.

What comes next: dot plot signals more hikes ahead

The Fed’s dot plot, which shows individual officials’ rate expectations, revealed that 16 of 18 participants expect at least one more rate hike before year-end. Four officials see two additional quarter-point increases, bringing rates to 4.25%-4.5%. Most officials project rates will hold steady in 2027 at around 4.125%, suggesting the Fed plans to pause after removing the 75 basis points of accommodation it added last year.

Trump’s public clash with the Fed over rate policy

Minutes after the announcement, Trump posted on Truth Social that rates “should be 1%, or less, because we are the Best Credit in the World by FAR.” White House spokesman Kush Desai told Fox News the hike was “not backed by a particularly compelling economic case,” arguing that inflation stems from an energy supply shock unaffected by interest rates. Warsh defended Fed independence, stating the central bank would “call them the way we see them” on monetary policy while respecting the White House’s role in trade and fiscal matters.

What this means for borrowers and savers in Hong Kong

Higher US rates typically strengthen the dollar and can pressure Asian currencies, including the Hong Kong dollar, which is pegged to the US dollar. Borrowers face rising costs on dollar-denominated loans and mortgages. Savers benefit from better returns on dollar deposits and bonds. Hong Kong’s Hang Seng Index fell sharply on the news, with the Dow Jones dropping 750 points as investors repriced growth expectations amid tighter monetary conditions.

Final Thoughts

The Fed’s rate hike marks a turning point after three years of cuts, signaling that inflation remains the central bank’s priority over growth. With Trump demanding lower rates and most officials expecting at least one more hike this year, expect continued volatility in global markets and currency pressures on the Hong Kong dollar.

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The content shared by Meyka AI PTY LTD is solely for research and informational purposes.  Meyka is not a financial advisory service, and the information provided should not be considered investment or trading advice.