Federal Reserve Raises Rates 25 Basis Points to 3.75%-4.00% in First Hike Since 2023

The Federal Reserve raised its benchmark interest rate by 25 basis points on September 16, bringing the federal funds target range to 3.75%-4.00%. The decision was unanimous, with all 12 voting members in favor, and marks the first rate increase since 2023, driven by inflation that the Fed described as still too high. The statement dropped an earlier characterization of elevated inflation as owing in part to supply shocks, a shift signaling that policymakers now view price pressures as more persistent.

The Fed's updated economic projections reflect a more hawkish outlook across the board. The median fed funds rate projection for end-2026 was revised up to 4.1% from 3.8% in June, with end-2027 now seen at 4.1% versus 3.6% previously, and end-2028 at 3.9% versus 3.4%. Of 18 officials, 12 penciled in one additional 25 basis point hike this year, four see two more, and only two see no further increases. Markets had already been pricing in two hikes by December and another in March before the decision landed.

The Fed's growth and labor projections were also revised in an optimistic direction. The 2026 GDP growth forecast was nudged up to 2.3% from 2.2%, while the unemployment forecast was revised down to 4.1% from 4.3%, reflecting a job market where hiring has kept pace with workforce growth and unemployment has barely moved. The 2026 PCE inflation forecast was lifted to 3.7% from 3.6%, with core PCE at 3.4% versus 3.3% in June. The Fed's statement described economic activity as expanding at a solid pace, with resilient domestic spending, strong productivity growth, and robust capital investment.