Fed Raises Interest Rates to 3.75%-4%, Signals Another Hike This Year

The US Federal Reserve raised its benchmark interest rate by 25 basis points on September 16, taking the federal funds target range to 3.75%-4.00%. The decision was unanimous and marked the first policy rate increase under new Fed Chair Kevin Warsh.

The latest policy projections indicate that 16 of the 18 policymakers expect at least one more quarter-percentage-point rate increase by the end of 2026, while two officials expect rates to remain at their current level. The projections put the policy rate at 4.00%-4.25% by year-end.

The Fed’s decision comes as inflation remains above its 2% target and energy prices have added to concerns over future price pressures. Policymakers also upgraded parts of their economic outlook while maintaining a focus on returning inflation toward the central bank’s target.

Financial markets initially reacted positively to the rate decision, but US stocks later moved lower following Warsh’s press conference. The S&P 500 ended down about 1%, while the Nasdaq declined 0.7%. Treasury yields moved higher, with the two-year yield particularly sensitive to expectations for future Fed policy.

The US dollar index rose 0.6% to 100.30, according to Reuters. The market response reflected expectations that borrowing costs could remain elevated for longer if inflation continues to prove persistent.

The Fed’s updated projections also show a different path from its June outlook, when policymakers had expected a rate cut in 2027. The latest projections indicate rates are expected to remain around the 4.00%-4.25% range through 2027 before moving lower in 2028.