Fed Raises Rates 25 Basis Points to 3.75%-4% in First Hike Since 2023, Signals More Tightening

The Federal Reserve raised its benchmark interest rate by a quarter percentage point on September 16, lifting the federal funds target range to 3.75%-4% in its first increase since 2023. The unanimous 12-0 FOMC vote marked a sharp policy reversal driven by persistent inflation, which the committee said has been rekindled in part by the U.S. war with Iran and rising oil prices. Updated economic projections indicated the possibility of at least one additional hike before year-end.

Fed Chairman Kevin Warsh said at his post-meeting press conference that price stability is foundational to economic growth and that the committee took an important step by removing accommodation. The 10-year Treasury yield hovered near the key 5% threshold following the decision, while the 2-year yield rose 5 basis points to 4.717%.

Wall Street sold off in response. Stocks swung sharply lower in the final hour of trading, with the Dow Jones Industrial Average leading declines, as investors digested both the rate increase and the signal that tightening is not finished. Mortgage markets also felt the impact, with analysts noting that the higher rate environment stands in stark contrast to late 2025, when the 30-year mortgage rate had fallen below 6.5%.