Federal Reserve raises rates for first time since 2023 as Chair Warsh fights for credibility

The Federal Reserve just did something it hasn’t done in over three years: it raised interest rates. The FOMC voted unanimously to increase the federal funds rate by 25 basis points on September 16, setting a new target range of 3.75%-4% and marking the first hike since July 2023.

For Fed Chair Kevin Warsh, the move was less about economics and more about survival. Jane Foley, Head of FX Strategy at Rabobank, put it bluntly during her appearance on Bloomberg Brief with Guy Johnson: Warsh “had to win his credibility.”

Why Warsh was cornered

Warsh, who took the helm of the Federal Reserve in 2026, walked into a job that was already on fire. Inflation has stubbornly remained above the Fed’s 2% target, fueled by a cocktail of geopolitical disruptions and tariffs that have kept price pressures elevated well beyond what most policymakers anticipated.

The July FOMC meeting was supposed to be his moment to act. It wasn’t. Warsh held rates steady, and three FOMC members dissented at that meeting, a level of internal disagreement that signaled real fractures within the committee about how seriously the Fed was taking inflation.

By the time Warsh arrived at the Jackson Hole symposium in August, his speech there laid the groundwork, signaling a willingness to raise rates further if inflation data didn’t cooperate. September’s unanimous vote was that follow-through, a notable shift from the fractured July meeting.

What Rabobank sees next

Foley’s comments went beyond just reacting to the September decision. Rabobank’s analysts are projecting one additional rate hike before the end of 2026, followed by an anticipated pause in tightening through 2027.

The inflation picture remains messy

The persistent inflation driving these decisions isn’t the garden-variety demand-pull kind that rate hikes are designed to squash. It’s being driven significantly by supply-side factors: geopolitical tensions disrupting trade flows, tariffs raising import costs, and structural shifts in global supply chains.

Foley’s framing of Warsh’s predicament captures this tension. He needs to be seen fighting inflation to maintain institutional credibility, even if the tools at his disposal are imperfect matches for the inflation he’s fighting.

The three dissents from July also deserve continued attention. Unanimous votes are nice headlines, but the underlying disagreements about how aggressively to fight inflation haven’t disappeared. If inflation accelerates further, those fault lines will resurface, and Warsh will face an even harder version of the credibility test he just barely passed.