US Federal Reserve chairman Kevin Warsh last night defied Donald Trump as he increased interest rates in a bid to tackle persistent inflation in the world’s biggest economy.

Warsh, who was hand-picked by Trump to take over at the Fed earlier this year – said the central bank had acted to remove ‘a dose of accommodation’ from the economy.

‘The plain fact is that inflation is too high and has been for too long,’ he said.

But he fought shy of saying whether the increase would presage a series of hikes, saying: ‘I’m not in the forward guidance business.’

Last night’s decision, in a unanimous 12-0 vote, is likely to infuriate the president. He had previously piled intense pressure on Warsh’s predecessor Jerome Powell to cut rates.

Trump has even threatened to cut off trade to certain countries unless rates are cut but, asked about the threat, Warsh said: ‘Part of the independence of the Federal Reserve is, we stay in our lane. Independence is a two-way street.

‘We’ll let people that do trade policy and fiscal policy stay in their lane too.’

US ten-year bond yields climbed after the rise but were little changed on the day.

The Fed’s increase in interest rates, to a range of 3.75 per cent to 4 per cent, was the first since 2023.

Most members of its rate-setting committee indicated that they expect at least one more quarter-point hike by the end of the year.

With the central bank’s preferred measure of inflation, at 3.7 per cent well above the its 2 per cent target, the increase was widely expected by financial markets.

Trump’s Iran war is adding to price pressures, sending oil back above $100 a barrel in recent weeks as hostilities showed little signs of easing.

The president’s tariffs on major trading partners, together with evidence of robust jobs growth and an artificial intelligence (AI)-fuelled spending boom, have added to the risk.

That has piled pressure on Warsh to clarify his stance on rates, especially as markets fretted about the Fed’s independence. He responded to those worries in a closely-watched speech to central bankers at Jackson Hole, Wyoming.

Warsh used the event to reiterate the Fed’s commitment to its inflation target and that there was no sign ‘underlying trends have meaningfully improved’.

That was taken as a sign of hawkish intent ahead of last night’s hike.

In a statement announcing the move, the Fed said it ‘will support a timelier return to the committee’s 2 per cent goal’. The decision comes in the wake of a global bond market rout, fuelled by inflation fears as well as the surge in the US debt pile to more than $40trillion.

Earlier this week, yields on US Treasury bonds climbed above 5 per cent to a 19-year high.

An attempt by Trump’s Treasury Secretary Scott Bessent to quell the rout by injecting billions of dollars into the market has failed to gain traction.

Richard Carter, head of fixed interest research at Quilter Cheviot, said of the Fed move: ‘This is a pivotal moment for Kevin Warsh. 

He was brought into the Fed as Trump’s guy, poised to deliver the rate cuts he so desperately wants.

‘However, his first move of significant impact is in fact an interest rate rise, and this risks hampering the relationship between the two, and thus a repeat of the barbs Jerome Powell suffered during his tenure.’