# Why the Federal Reserve Raised Interest Rates

An episode of [Big Take](https://invisiblenetwork.ai/podcast/1578096201), 16 Sep 2026, 18 min.

Audio: https://podtrac.com/pts/redirect.mp3/tracking.swap.fm/track/UVBrz8bN8aM2Xe47PEPu/traffic.omny.fm/d/clips/e73c998e-6e60-432f-8610-ae210140c5b1/825d4e29-b616-46f4-afd7-ae2b0013005c/ad4fd117-c5cf-47ca-addd-b4c70174c9de/audio.mp3?utm_source=Podcast&in_playlist=8b1dd624-a026-43e9-8b57-ae2b00130066

The Federal Reserve raised interest rates by 25 basis points today and indicated another hike could come later this year. Chair Kevin Warsh had telegraphed the move, putting him on a collision course with President Donald Trump. Today on the Big Take, Bloomberg Opinion’s John Authers and Fed reporter Maria Eloisa Capurro join David Gura to discuss why a “no forward guidance” Fed chair showed his hand so early and what it means for the markets and the midterms. Read more: Fed Raises Rates as Warsh Bucks Trump to Contain Inflation We have a special Bloomberg subscription offer for podcast listeners at Bloomberg.com/podcastoffer. Hosted by David Gura; Guests: John Authers, Maria Eloisa Capurro; Produced by Rachael Lewis-Krisky; Edited by Naomi Shavin; Mixed by Alex Sugiura See omnystudio.com/listener for privacy information.

## Transcript

[0:03] Speaker 1: A lot of people thought that he would try to
[0:12] Speaker 1: balance what the bond market was asking of him and
[0:15] Speaker 1: what the president was asking of him by implying that
[0:18] Speaker 1: he was just going to hike the ones, that this was.
[0:20] Speaker 2: One and done. It seems that he has dealt with
[0:25] Speaker 2: that issue and maintained his credibility in many important ways by, yeah,
[0:31] Speaker 2: he's given us a rationale for he's really quite comfortable
[0:34] Speaker 2: hiking and without absolutely pre-committing to it, making it pretty
[0:39] Speaker 2: clear that he's prepared to go further.
[0:41] Speaker 3: I'm David Gurra, and this is The Big Take from
[0:46] Speaker 3: Bloomberg News. Today on the show, the Federal Reserve raises
[0:50] Speaker 3: rates by 25 basis points unanimously in the Bloomberg Opinions'
[0:58] Speaker 3: John Authors is with me, along with Maria Eloisa Capuro,
[1:01] Speaker 3: who covers the Fed for Bloomberg News. And the three
[1:04] Speaker 3: of us are going to dig into the Fed's latest
[1:06] Speaker 3: rate hike, the market reaction, and the political fallout.
[1:17] Speaker 4: The plain fact is that inflation is too high and
[1:21] Speaker 4: has been for too long.
[1:23] Speaker 3: John, you wrote earlier this week that Kevin Walsh kind
[1:25] Speaker 3: of walked into a rates trap. Yes. Explain what you
[1:29] Speaker 3: meant by that. I can't think of a CPI report
[1:31] Speaker 3: that has had as much perceived importance as the one
[1:33] Speaker 3: that we got last week.
[1:34] Speaker 2: This is one of the more plainly consequential ones. And
[1:38] Speaker 2: the irony is that Kevin Walsh has set out his
[1:41] Speaker 2: stall against giving forward guidance, against boxing himself into corners.
[1:48] Speaker 2: But the way he presented himself at Jackson Hole a
[1:52] Speaker 2: few weeks ago when he complained that inflation was too high,
[1:57] Speaker 2: he made the point that the level of inflation is unacceptable.
[2:01] Speaker 2: He didn't talk about the direction of travel. He wasn't
[2:04] Speaker 2: talking about are things steadily improving. He was saying this
[2:08] Speaker 2: is too high. And the problem he then had was
[2:11] Speaker 2: that last month's report, the level is still too high,
[2:18] Speaker 2: if you are serious about the Fed's target, because of Oil, thus,
[2:23] Speaker 2: he more or less boxed himself into hiking because of
[2:26] Speaker 2: the framework he gave us only a couple of weeks
[2:28] Speaker 2: ago and because credibility is so important.
[2:32] Speaker 3: Maria Eloise, I saw you in Jackson Hole after that speech.
[2:36] Speaker 3: Was it immediately evident to you when he delivered it
[2:38] Speaker 3: that this trap had been set and indeed he was
[2:41] Speaker 3: wandering into it?
[2:42] Speaker 5: It was definitely something that we were asking people where
[2:44] Speaker 5: they felt like caged in into September. But I think
[2:47] Speaker 5: it's useful also to take a few steps before that,
[2:51] Speaker 5: see if it's back. And the reality is that there
[2:54] Speaker 5: were members of the committee. This is not just Kevin Walsh.
[2:57] Speaker 5: This is a committee of other people voting. There were
[2:59] Speaker 5: already members of the committee who felt back in July
[3:03] Speaker 5: that there was enough reason to hike. So we had
[3:06] Speaker 5: three descents in favor of a quarter point hike. And
[3:09] Speaker 5: at the same time, we've had most recently, even after
[3:13] Speaker 5: Walsh's speech, other members of the committee also saying that
[3:16] Speaker 5: they're very concerned about inflation and that if August came
[3:19] Speaker 5: in hot, they would be willing to consider a hike.
[3:24] Speaker 5: So it is pressure building also, I would say, like
[3:29] Speaker 5: around him. In the sense of words, he also came
[3:33] Speaker 5: to Jackson Hole very pressured to deliver or to explain
[3:37] Speaker 5: his thinking a little bit more.
[3:39] Speaker 3: Because he was so reluctant to do so.
[3:40] Speaker 5: Exactly. And it's not, as John was saying, not just
[3:43] Speaker 5: his reluctancy to give further guidance in terms of where
[3:47] Speaker 5: interest rates are going, but he also wasn't giving much
[3:51] Speaker 5: of his thinking around anything on the economy. July's presser
[3:57] Speaker 5: was very criticized. His answers to reporters were not very
[4:03] Speaker 5: detailed into what is he thinking about inflation? Where is
[4:08] Speaker 5: he seeing signs that concern him? What does he think
[4:12] Speaker 5: about the employment? So I felt like he felt forced
[4:16] Speaker 5: to be more direct, and he was.
[4:19] Speaker 3: How direct was he in talking both about the rate
[4:22] Speaker 3: hike and the rationale behind it?
[4:25] Speaker 2: He was perhaps slightly more direct than he might have been.
[4:28] Speaker 2: You could argue that he was arguing to a constituency
[4:32] Speaker 2: of one, i.e. Donald Trump, in making it several times
[4:35] Speaker 2: clear that this was because of the economy being stronger
[4:39] Speaker 2: than people thought it was. and that geopolitics had moved against,
[4:46] Speaker 2: but that was an interesting way to frame it, which
[4:51] Speaker 2: he came up with several times. If you listened very carefully,
[4:55] Speaker 2: he was saying that he was embracing a discipline rather
[4:57] Speaker 2: than a decision.
[4:59] Speaker 4: Last month in Wyoming, I expressed my commitment to a
[5:03] Speaker 4: monetary policy discipline, not to a decision.
[5:07] Speaker 2: So I think your average psychological profiler, if this was
[5:11] Speaker 2: a thriller, would say that he's giving the game away
[5:15] Speaker 2: that he does indeed expect to hike further.
[5:18] Speaker 5: And that's what the dot plots said today as well.
[5:22] Speaker 2: The dot plots say that, and Bloomberg's beautiful work is
[5:27] Speaker 2: now even clearer that we've got three more hikes after
[5:32] Speaker 2: this one, four hikes total. This is going to be
[5:34] Speaker 2: a true... tightening cycle. And that is a quite remarkable
[5:39] Speaker 2: shift in a very swift period of time, which has
[5:43] Speaker 2: been accompanied, I would argue, by a really quite surprisingly
[5:47] Speaker 2: mild reaction in the stock market.
[5:49] Speaker 3: And we go to the warp function, the world interest
[5:51] Speaker 3: rate probability function, the Fed funds future rate function on
[5:54] Speaker 3: the terminal and see there was such conviction among investors
[5:59] Speaker 3: that the Fed was going to raise rates today. 2 p.m.,
[6:03] Speaker 3: headline flashes on the terminal. I get up and look
[6:04] Speaker 3: at you, John, across the newsroom, your eyes, eagle eyes
[6:07] Speaker 3: glued to your worksheet, looking at the market reaction. Walk
[6:11] Speaker 3: us through what you saw, what your takeaways were from
[6:13] Speaker 3: the way that the market reacted to the decision today
[6:16] Speaker 3: and the chairman's comments at the press conference.
[6:18] Speaker 2: I mean, the most obvious reaction, which held up was
[6:22] Speaker 2: the dollar. Looks as though currency traders weren't expecting this reaction.
[6:30] Speaker 2: hawkish a move and i think the statement also similarly
[6:33] Speaker 2: had more of an implication that they were going further
[6:36] Speaker 2: than had initially been thought and you did see higher
[6:39] Speaker 2: rates all other things equal attract funds to where the
[6:42] Speaker 2: higher rates to be had strengthen the dollar all else
[6:45] Speaker 2: equal so the dollar was the one that um most
[6:50] Speaker 2: startled me uh and most interested me The other thing
[6:54] Speaker 2: that intrigued me, you know, the stock market, we are
[6:58] Speaker 2: below the peak. We're about 3%-ish below where the peak was.
[7:03] Speaker 2: We're still up 10% for the year, if you ask me.
[7:06] Speaker 2: This was more hawkish than expected, should therefore very directly
[7:10] Speaker 2: mean that stocks should go down a bit. And they did,
[7:13] Speaker 2: but they really didn't go down all that much. And
[7:16] Speaker 2: that was quite interesting. There were moments during the press
[7:19] Speaker 2: conference when– when the stock market seemed to be getting
[7:23] Speaker 2: more nervous, but you're still down 0.5% for the day.
[7:31] Speaker 2: After plainly more hawkish, worse for stocks than expected announcement
[7:37] Speaker 2: suggests basically that we can handle this, that Kevin Walsh
[7:43] Speaker 2: is right when he says he finds it hard to
[7:45] Speaker 2: say that conditions are are restrictive at the moment. He's
[7:49] Speaker 2: just hiked rates and the stock market is still very
[7:52] Speaker 2: close to a really impressive all-time high.
[7:54] Speaker 3: John, let's talk about how we got here. Just give
[7:56] Speaker 3: us the 30,000 foot view of how this economy is
[8:00] Speaker 3: doing now with the data are telling us and policy
[8:02] Speaker 3: makers about jobs and inflation as well.
[8:04] Speaker 2: We've got to bear in mind that this is with
[8:07] Speaker 2: looking at the economy in the aggregate, but at the
[8:10] Speaker 2: aggregate level, particularly thanks to the unexpected positive shock coming
[8:15] Speaker 2: from all the money being spent on AI. There's no
[8:17] Speaker 2: great positive shock from productivity helped by it yet, but
[8:22] Speaker 2: there plainly is a very big positive shock from the
[8:24] Speaker 2: sheer amount of money being spent on building it out.
[8:28] Speaker 2: The economy is fine. Nominal GDP is rising at levels
[8:34] Speaker 2: that's outside of the really big distortions around the pandemic
[8:38] Speaker 2: we haven't seen in 20 odd years, since before the
[8:41] Speaker 2: the global financial crisis, and didn't really very often see
[8:45] Speaker 2: grow any faster than this for the 10 years before that,
[8:48] Speaker 2: which given that the economy is that much bigger these days,
[8:51] Speaker 2: starting from a higher base, that's a good place to be.
[8:53] Speaker 2: If you look at financial conditions, Bloomberg has lots of
[8:58] Speaker 2: very cunning ways of smooshing together lots of different measures
[9:01] Speaker 2: of exactly how tight money is. Financial conditions are pretty
[9:05] Speaker 2: much as easy as they have ever been. since we've
[9:09] Speaker 2: been measuring them, which again goes back some decades. So
[9:13] Speaker 2: there is no way on earth that you cannot survive
[9:18] Speaker 2: one pathetic little 25 basis point rise in the Fed
[9:22] Speaker 2: funds rate. Companies are raising money with no problem at all.
[9:26] Speaker 2: And where there is at least some reason to think
[9:29] Speaker 2: that inflation is higher than ideal and that it's worth
[9:33] Speaker 2: taking some steps to reduce it, particularly given that there
[9:38] Speaker 2: is a very serious problem with inequality, which is very
[9:41] Speaker 2: directly worsened when inflation is high. Ergo, from 30,000 feet,
[9:46] Speaker 2: there's an argument for rates to be somewhat higher than
[9:49] Speaker 2: they are now.
[9:53] Speaker 3: After the break, more of my conversation with John Authors
[9:56] Speaker 3: and Maria Eloisa Capurro. So, John, in that trap that
[10:09] Speaker 3: you described, there were the political pressures that Kevin Warsh
[10:11] Speaker 3: is under. And then there's this other mechanism, this other
[10:14] Speaker 3: part of the trap, which focuses on sort of the
[10:17] Speaker 3: way that the market is responding. And Warsh talked about
[10:21] Speaker 3: referees and players and the like here back in July.
[10:24] Speaker 3: Are you surprised by the degree to which that market
[10:27] Speaker 3: mechanism has him most caged in right now?
[10:30] Speaker 2: I am a little. I mean, the World Cup was on.
[10:32] Speaker 2: Lots of Americans suddenly discovered the world's game.
[10:35] Speaker 5: Which we already know. You both do.
[10:37] Speaker 3: Our experience in Latin America.
[10:38] Speaker 2: Europeans and English people obviously know what it's like to
[10:41] Speaker 2: win the World Cup.
[10:42] Speaker 5: Yes.
[10:42] Speaker 2: Unlike Americans. We won it four times.
[10:44] Speaker 5: Brutal. Brutal. According to the FIFA.
[10:47] Speaker 3: We digress.
[10:48] Speaker 2: We digress into subjects which may or may not interest us.
[10:51] Speaker 2: Even more than monetary policy. I think the trap is
[10:55] Speaker 2: we are in this very difficult situation. There are two
[10:58] Speaker 2: important points. One is... Donald Trump has been prepared to
[11:00] Speaker 2: take much more direct action against Jay Powell than any
[11:05] Speaker 2: president had done in previous history against a Fed chairman.
[11:09] Speaker 3: Jay Powell is still a governor.
[11:10] Speaker 2: He is still a governor. There are limits to what
[11:13] Speaker 2: he could do, but plainly he can make your personal
[11:15] Speaker 2: life very difficult. And Lisa Cook could tell you this
[11:19] Speaker 2: as well. The other thing is at this point, and
[11:22] Speaker 2: this could actually surprisingly point to how important the midterms
[11:26] Speaker 2: turn out to be, Walsh's term lasts longer than Trump's.
[11:30] Speaker 2: Unless you can find a way to actually fire him,
[11:34] Speaker 2: which we discovered with Jay Powell is pretty difficult, he
[11:39] Speaker 2: can just outlast this guy now. And a lot could
[11:44] Speaker 2: depend on the midterms. If this is a really major
[11:48] Speaker 2: blue wave rebuke to Trumpism, which is possible, then Trump
[11:52] Speaker 2: can huff and puff a lot more and we have
[11:55] Speaker 2: a more truly independent Fed chair If it turns out,
[12:00] Speaker 2: and again, I regard this as about equally likely to
[12:03] Speaker 2: the big blue wave, that he barely loses the House,
[12:06] Speaker 2: holds onto the Senate quite comfortably, quite a number of
[12:09] Speaker 2: big Trumpy politicians actually get back in, and you still
[12:13] Speaker 2: have a fairly empowered president with the Senate behind him
[12:16] Speaker 2: for another two years, even if he's a lamer duck
[12:19] Speaker 2: than he was, that could make quite a big difference
[12:22] Speaker 2: to the politics of exactly how Kevin Walsh is able
[12:25] Speaker 2: to do his business, exactly how independent he can be.
[12:28] Speaker 5: And to add, even though the Fed remains independent from
[12:32] Speaker 5: economic cycles, and I do feel all of the Fed
[12:37] Speaker 5: officials do think about the economy independently from economic cycles,
[12:41] Speaker 5: the reality is that if the situation gets worse in
[12:45] Speaker 5: inflation and they didn't hike now, what could have happened
[12:49] Speaker 5: in October? Like, are they actually free to hike in October? Like,
[12:54] Speaker 5: is the next rate hike most likely coming in December still?
[12:57] Speaker 3: Because of the election.
[12:58] Speaker 5: Because of the election cycle. There are studies that do
[13:02] Speaker 5: actually show that central bankers pressed into political cycles to
[13:09] Speaker 5: at least intend to weigh them out and not make
[13:14] Speaker 5: drastic calls before elections.
[13:17] Speaker 2: There's certainly a very widespread belief, which I can tell
[13:21] Speaker 2: you just from my inbox. There was the jumbo cut...
[13:26] Speaker 2: that Jay Powell made of 50 basis points the September
[13:30] Speaker 2: before the 2024 election. And if you could remove the
[13:34] Speaker 2: election from it and I could completely explain, it was
[13:37] Speaker 2: a contentious decision, but I could completely explain it. They
[13:40] Speaker 2: very nearly had cut the meeting before and they'd had
[13:43] Speaker 2: some surprisingly bad data immediately, like two days after they
[13:46] Speaker 2: had met and realised they should have cut then and
[13:49] Speaker 2: they were catching up. There were good explanations for why
[13:51] Speaker 2: they suddenly cut by 50 bips with an election coming up.
[13:55] Speaker 2: That looked bad. It's not stupid. It is not mad
[13:59] Speaker 2: conspiracy theorism to think that was out of order. And
[14:04] Speaker 2: that has definitely heightened tensions. You do not, if you're
[14:09] Speaker 2: Kevin Walsh, want to be on the receiving end of
[14:12] Speaker 2: people angrily thinking you are playing politics.
[14:15] Speaker 3: So we got the market reactions we've been talking about
[14:18] Speaker 3: and then the anticipated reaction from the president as well.
[14:22] Speaker 3: He posted on Truth Social after the meeting and the
[14:24] Speaker 3: press conference. Interest rates in the United States should be 1%
[14:27] Speaker 3: or less because we are the best credit in the
[14:29] Speaker 3: world by far. He goes on to say at the
[14:32] Speaker 3: end of that post, lower the interest rates for the
[14:34] Speaker 3: United States of America and FAST, all caps with an
[14:37] Speaker 3: exclamation mark at the end. What does this mean for
[14:39] Speaker 3: Kevin Warsh as he is still navigating this new job?
[14:42] Speaker 2: To some extent, as I've been saying earlier, unless he's
[14:50] Speaker 2: prepared to go to the lengths of actually trying to
[14:53] Speaker 2: fire Kevin Warsh for cause, or get the Justice Department
[14:59] Speaker 2: to come up with some reason to prosecute him as
[15:02] Speaker 2: an individual. Both of which, unfortunately, are conceivable, but are unlikely.
[15:08] Speaker 2: I don't think famous last words. I'm not sure what
[15:13] Speaker 2: Donald Trump says about this. For now, matters all that much.
[15:18] Speaker 2: He made his call. He gave Walsh the job. He
[15:21] Speaker 2: stuck with him. And he can huff and puff, but
[15:25] Speaker 2: I don't think that would move the market terribly unless
[15:29] Speaker 2: he did something as extreme as I just said, unless
[15:31] Speaker 2: he actually makes a coherent attempt to fire the guy.
[15:35] Speaker 2: That would be huge and it would be very misguided.
[15:37] Speaker 5: I think there's also ways in which maybe we get
[15:41] Speaker 5: a more tame reaction than we feared from the White House.
[15:47] Speaker 5: But if they can sell it as... it is appearing
[15:52] Speaker 5: to be a decision to initiate a rates hike cycle
[15:58] Speaker 5: that may be a short one because really there's two
[16:01] Speaker 5: more rate hikes implied in the dot plot that sort
[16:07] Speaker 5: of corrects and, you know, removes the dose of accommodation
[16:13] Speaker 5: that Chairman Walsh was saying today and helps drive strengthening
[16:19] Speaker 5: the economy, as he also said.
[16:21] Speaker 4: We removed a dose of accommodation so that financial and
[16:25] Speaker 4: credit conditions would be more consistent with our ultimate objectives.
[16:29] Speaker 5: But for everyone, as he also said, that inflation, it
[16:33] Speaker 5: is a tax on those who have, on those lower
[16:37] Speaker 5: income households.
[16:38] Speaker 1: Yes.
[16:38] Speaker 5: If he can sell it that way, I think we
[16:42] Speaker 5: may have a more mild reaction and he survives.
[16:47] Speaker 2: One other point I'd add to that, I think Kevin
[16:49] Speaker 2: Walsh was, he's quite a good politician, Kevin Walsh. He
[16:53] Speaker 2: did sell this as the economy is stronger than I
[16:56] Speaker 2: thought it was when I arrived 120 days ago. The
[17:00] Speaker 2: phenomenal Trump economy is just so good that we just
[17:05] Speaker 2: have to tighten rates just a little bit and it
[17:08] Speaker 2: isn't going to hurt it because we're just so strong.
[17:14] Speaker 3: This is The Big Take from Bloomberg News. I'm David Gurra.
[17:17] Speaker 3: To get more from The Big Take and unlimited access
[17:19] Speaker 3: to all of Bloomberg.com, subscribe today at Bloomberg.com slash podcast offer.
[17:24] Speaker 3: If you liked this episode, make sure to follow and
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[17:32] Speaker 3: back tomorrow.

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