WASHINGTON, D.C.: The Federal Reserve reversed course on interest rates this week, hiking borrowing costs for the first time in three years, as inflation remains stubbornly high.

A quarter-point increase in the Fed's short-term rate was implemented on Wednesday. Most analysts and economists had expected a hike after Warsh said at the Fed's annual conference in Jackson Hole, Wyoming, two weeks ago that inflation had not yet been brought under control.

"The Federal Open Market Committee decided to raise the target range for the federal funds rate by 1/4 percentage pointto 3-3/4to 4 percent, in support of the Federal Reserve's dual mandate. The Committee is continuing its policy of maintaining ample reserves in the banking system," the committee said in a statement published on Wednesday.

"Economic activity is expanding at a solid pace. While uncertainty remains elevated owing, in part, to geopolitical developments,domestic spending has been resilient. Productivity growth is strong, and capital investment is robust. Job gains have kept pace with the workforce, and the unemployment rate has changed little."

"Inflation remains elevated. Today's policy action will support a timelier return to the Committee's 2 percent goal. The Committee will deliver price stability," the statement said..

The increase marks a significant shift from March, when the Fed forecast it would cut rates once this year. The Iran war has since flared up again, driving oil and gasoline prices sharply higher and making it likely that inflation will remain above the Fed's 2 percent target for longer.

"I don't see any end to the war in Iran right now," Kristin Forbes, an economist at MIT's Sloan School, said Wednesday. "Given what everyone has been through in the last few years of high inflation, consumers are more sensitive, companies are more sensitive, they raise prices faster ... The risks are much more on more persistent inflation than it falling quickly."

Surging investment in AI data centers has also been accelerating inflation and contributing to higher longer-term interest rates, although leading companies are now discussing slowing the technology's development.

The Fed's decision comes seven weeks before the midterm elections, where high prices and affordability have become key issues.

President Donald Trump has demanded that the central bank cut rates, an option that was not on the table. On September 13, Trump said, "The United States is so strong we should be paying the lowest interest rate in the world."

Trump repeatedly attacked Warsh's predecessor, Jerome Powell, in harshly personal terms, breaking with decades of tradition in which presidents treated the Fed as independent.

On September 13, Trump's top economic adviser, Kevin Hassett, said on CNN that Trump "100 percent respects the independence of Kevin Warsh."

Hassett, however, also suggested in a Fox News interview that the Fed should not increase rates so close to the elections.

"I'd be wary of a rate hike ... I think if you want an independent Fed, then one thing the Fed does is it stays out of the way of elections," Hassett said.

Financial markets nevertheless expected the central bank to raise rates Wednesday. Futures prices indicated traders saw a 90 percent probability of a hike, with the odds rising after the inflation report on September 11 showed that prices remained stubbornly high and that core inflation, excluding volatile food and energy, accelerated in August from the previous month.

Most economists argue that, after last month's inflation report and Warsh's tough comments on inflation, failing to raise rates would have undermined his credibility with financial markets. Longer-term rates, including yields on 10-year and 30-year Treasury bonds, could have risen further if the Fed did not act as it did.

Warsh said at Jackson Hole that recent inflation reports "do not tell me that underlying trends have improved," adding that if improvement did not emerge soon, "we have work to do."