The Federal Reserve raised its benchmark rate by 25 basis points on Wednesday, increasing the benchmark federal funds rate to a range of 3.75% to 4%. It was the first increase since 2023 and the first thing Kevin Warsh has done to interest rates since President Donald Trump handed him the chair role.

The vote was unanimous.

Trump picked Warsh to deliver the “lowest rates” in the world, and Warsh has now delivered the first hike of Trump’s second term. Between Warsh’s nomination and Wednesday’s vote, the President called the committee “clowns” for wanting the hike.

But the data left officials little choice; after five years of above-2% inflation, dour consumer sentiment, a war in Iran and strong jobs reports, the Fed needed to hike to support a “timelier” return to 2% inflation. August CPI was the nail in the coffin, rising 0.4% on the month, quadruple the pace of July. By Tuesday, futures put the odds of a hike at 93%—at this point, it would have been more surprising for the Federal Reserve to decide against raising rates.

The statement didn’t provide any hints about forward guidance. “Inflation remains elevated,” it said. “Today’s policy action will support a timelier return to the Committee’s 2 percent goal. The Committee will deliver price stability.” It also described productivity growth as strong and capital investment as robust.

Warsh’s own dissenters got there first. Beth Hammack, Neel Kashkari, and Lorie Logan voted for a hike in July and lost 9–3.

The median official now expects the federal funds rate to end 2026 at 4.1%, up from 3.8% in June, which implies one more quarter-point increase before year-end. The 2027 median is also 4.1%, meaning no cuts next year.

The longer-run rate, the Fed’s estimation of the neutral rate, barely moved, with seven officials still having it at about 3%.

Warsh hinted at the move without ever quite saying it. At Jackson Hole in late August, he said 54% of the 199 components in the PCE price index had risen more than 3% over the prior 12 months, an argument that inflation wasn’t just due to oil prices or tariffs. He continued to refuse to give forward guidance, saying he prefers that officials have a “good family fight” over the data.

The administration has argued that core CPI is annualizing at 1.6% over three months, under the 2% gauge. But the Fed’s preferred number, core PCE, runs just over 3%.

Trump officials have also argued that AI capex will raise the economy’s capacity to take on demand, and that productivity gains will eat away at inflation. But right now, the AI buildout is bidding up the price of the equipment it needs. And there’s no evidence yet that AI will boost productivity in the long run.

The initial reaction in the Treasury market was muted.