inflation is too high and has been for too long.

The Federal Reserve unanimously voted to increase interest rates to 3. 75%-4% from 3. 5%-3. 75% on Wednesday, citing inflation as the primary reason for the move.

Higher interest rates make borrowing more expensive for people wanting to secure loans, mortgages and credit cards, but can lead to better returns on savings.

Warsh said while there was 'an attitude of optimism' within the Federal Reserve leadership, inflation remained a problem.

'For more than five years, inflation has been running above target,' he said. 'The plain fact is that inflation is too high and has been for too long. 'Central banks tend to increase rates when inflation is high to discourage spending and encourage saving in the hope this will reduce the pace of price rises.

But it's a balancing act, as higher rates can also encourage businesses to hold off on investing and hurt economic growth.

A 0. 25pp increase will likely add to increasing mortgage rates for homebuyers, as the rates set by banks and other lenders are heavily influenced by the Fed's policy rate. Major US banks JP Morgan, KeyCorp and BNY raised their prime lending rate on Wednesday to 7% from 6. 75% in response, which will rates charged on credit cards and personal loans.

Mortgage costs have climbed over the past year but remain below peaks seen in 2023. A 30-year fixed deal is 6. 76% on average, while a 15-year deal is 6. 09%, according to figures from Freddie Mac. Due to many US homeowners having 30-year and 15-year fixed-rate mortgages, changes to interest rates will not impact monthly repayments, though they could affect those looking to secure a loan for a home or refinance.

Warsh declined to provide his own view on where he saw interest rates going into the future, but the majority of his fellow policymakers said they believe rates would be hiked again before the end of this year to between 4-4. 25%. A small majority said rates could rise further to the 4. 25-4. 5% next year, before cuts begin in 2028 and 2029.

The forecast suggested price rises will ease in the coming years, with inflation, the measure used to assess the cost of living, predicted to fall steadily to the Fed's 2% target by 2029.

US borrowing costs hit highest level since 2007. US prices remain high as fuel costs squeeze household budgets.