US Fed raises interest rate for first time in three years

US Federal Reserve Board Chairman Kevin Warsh has announced a benchmark interest rate hike of a quarter of a percentage point to about 3.9% for the first time in three years in an effort to quell high inflation.

He also suggests they expect to lift rates a second time later this year to 4.1% in the quarterly projections.

The White House responds by calling the move a "rather unfortunate decision" that is not backed by a particularly compelling economic case.

The Fed has officially released its decision of raising the target federal funds rate by 25 basis points to a range of 3.75% to 4%, which will gradually raise borrowing costs for mortgages, auto loans, and credit cards.

All 12 members of the policy-setting Federal Open Market Committee unanimously voted in favour of the rate hike as they reaffirm the policy of maintaining ample reserves in the banking system.

At Wednesday's press conference, Fed Chair Kevin Warsh notes while the job market remains resilient, the committee felt compelled to act because the US inflation stubbornly entrenches above the 2% target.

He concurrently stresses the Fed needs to focus on its dual mandates, deliver on them and stay in their lane. "So our predominant focus is on the price stability side of our mandate. The plain fact is that inflation is too high and has been for too long."

The move is seen as a turnaround for Warsh, who has faced presidential pressure to implement rate cuts since taking the lead at the Fed in May.

Chris Rugaber from the Associated Press says: "Warsh had suggested that rates could come down when he was under consideration for the fed chair position. But when testifying before the Senate this spring, he said that he would act independently and that he had not pre-committed to any particular outcome when being considered by Trump."

An economist contends the Fed's decision has an impact on front-end rates and moved them higher, otherwise they would see continued rise of the 10-year Treasury yield and the 30-year fixed rate mortgage.

Professor of Finance from Texas A&M University, Jill Cetina, says: "It did so because it needed to take some actions to basically address inflation and the inflation concerns that were causing the sell-off at the back end."

The latest hike, meanwhile, spurs a sharp response from the White House, with US President Donald Trump blasting what he calls a "hostile" Federal Reserve board that intentionally does so to target him.

Trump also weighs in on social media to pressure the Fed into lowering interest rates and claims they should be 1% or less because the United States has the "best credit in the world -- BY FAR."

He says: "Interest rates are too high, they're not appropriate, and I talked to Kevin and I said, you might as well vote with the board because it's not going to matter. The board is very hostile, they're very political. They're doing the wrong thing."