The Federal Reserve sent shockwaves through the financial industry, with the rate-setting committee voting unanimously for its first interest rate hike in over three years.
The quarter-point rate increase is likely only the first in a series, as it is standard practice for the
Fed to raise rates multiple times once it has decided they need to be higher.
This latest move comes as a disappointment for President Donald Trump, who has long criticized the Fed for tight monetary policy.
After the recent hike, he called the rate-setting committee “a bunch of politicians” and accused them of making the move for political reasons.
He said that the Fed board is “very hostile, they’re very political, and they’re doing the wrong thing.”
The president also took to Truth Social to post that he believed interest rates should be “1%, or less, because we are the best credit in the world.”
The president might wish to blame politics and paint himself as a victim of the Fed’s choices, however, since returning to office, it has been the president’s own policies that have stoked higher inflation and left the Fed with few options but to keep rates high.
The first way Trump raised inflation has been through his tariff agenda.
Before Trump returned to office, inflation was cooling, and the Fed had already begun cutting rates, with three cuts coming in late 2024.
However, upon starting his current term, the president immediately prioritized an expansive tariff agenda.
The various levies the administration placed on nearly every kind of import have been an important part of why inflation has been running above target throughout the president’s term so far.
Research from the Fed confirmed this. It was determined that tariff policy in 2025 was responsible for “the entirety of excess inflation in core goods” through February 2026, and “contributed to a 0.8% increase in core PCE prices.”
Since core goods prices as reflected in the PCE index are the Fed’s preferred metric for understanding inflation, Trump’s tariffs keeping core goods inflation above target prevented the deep, rapid rate cuts markets wanted for most of 2025.
Luckily for Trump, despite tariff price increases being a problem for the Fed’s fight against inflation, the overall impacts remained modest enough that the Fed lowered rates a few times in late 2025, prioritizing concerns about the labor market over fighting inflation.
Unfortunately for Trump, the energy shock from the war in Iran forced the Fed to change course. Ever since Trump ordered strikes on Iran on Feb. 28, oil prices have shot through the roof from $71 a barrel to $115, and are now floating around $100 a barrel.
The war not only spiked oil prices, but has caused a broad-based increase in inflation, since higher fuel prices also raise the price of many different economic activities like shipping goods.
This was the main catalyst for the Fed’s decision to reverse course and raise rates, as the Consumer Price Index has shot up in recent months due to the war, forcing the Fed to focus on dragging inflation back down.
Trump is hardly the first president to pressure the central bank or cite political bias. But with the Fed’s hands tied by the downstream impacts of his choices, the only politics Trump ought to blame for high rates are his own.
