Federal Reserve Raises Rates 25 Basis Points to 3.75%-4% in First Hike Since 2023, Signals One More Increase This Year

The Federal Reserve unanimously voted on September 16 to raise its benchmark interest rate by 25 basis points to a target range of 3.75%-4%, its first increase in three years and the first of the Kevin Warsh era as Fed Chair. The 12-0 vote ends the longest policy pause since 2008, and the move came in direct defiance of pressure from President Trump, who had called for a cut.

Fed Chair Kevin Warsh cited three developments that reshaped the outlook since July: a stronger economy and labor market, inflation failing to improve sufficiently, and a changed assessment of geopolitical risks. He said summer data gave him "very little" reason to ease his inflation concerns, adding that "the plain fact is inflation is too high and has been for too long," with too many spending categories still posting increases above 3% on both six-month and twelve-month bases.

The updated dot plot showed the median federal funds rate rising to 4.1% by end-2026, up sharply from the 3.8% projected in June, with 12 of 18 officials penciling in one more 25-basis-point hike this year, four seeing two additional moves, and only two expecting no further increases. The projected rate path was also lifted across the full horizon: 4.1% at end-2027 versus 3.6% in June, 3.9% at end-2028 versus 3.4%, and a longer-run rate revised up to 3.2% from 3.1%. Officials see no cuts in 2027, a notable shift from June projections that had included one.

The Fed's updated economic projections raised 2026 PCE inflation to 3.7% from 3.6% and core PCE to 3.4% from 3.3%, while upgrading its GDP growth forecast to 2.3% from 2.2% and lowering its unemployment projection to 4.1% from 4.3%, reflecting a more resilient labor market. The statement dropped earlier language attributing elevated inflation partly to supply shocks, a significant tonal shift signaling the Fed views inflation as more entrenched. The FOMC statement said the rate increase "will support a timelier return to the Committee's 2 percent goal."

Crypto markets responded with an initial spike in Bitcoin, which had been trading near $75,500 ahead of the decision. U.S. bond markets rallied following the announcement, while broader equities faced the prospect of a continued restrictive rate environment into 2027.