The Federal Reserve raised the target range for the federal funds rate by 25 basis points to 3.75%–4.00% on 16 September. The 12–0 decision marked the first US rate increase in more than three years. Policymakers said economic activity was expanding at a solid pace while inflation remained elevated. The central bank said the move was intended to return inflation to its 2% goal sooner.
The increase was the first policy shift under Chair Kevin Warsh, who took office in late May. Updated projections showed 16 of 18 policymakers expected at least one further quarter-point increase before year-end. The median path placed the target range at 4.00%–4.25% at the end of 2026 and at the same level at the end of 2027. The Federal Reserve also continued its policy of maintaining ample reserves in the banking system.
POLICYMAKERS PRIORITISED INFLATION
The Federal Open Market Committee described domestic spending as resilient, productivity growth as strong and capital investment as robust. It also said job gains had kept pace with the workforce and unemployment had changed little. The committee said the increase was in support of the Federal Reserve’s dual mandate.
US markets adjusted after the announcement and press conference. US stocks fell, the 10-year Treasury yield rose back above 5% and the dollar strengthened.
ANOTHER INCREASE REMAINS POSSIBLE
The projections implied one additional quarter-point increase in 2026 for the median policymaker, followed by no change during 2027 and one reduction in 2028.
The Federal Reserve’s next scheduled meeting is on 27–28 October.
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