Federal Reserve raises interest rate target range for first time since 2023

As anticipated, the Federal Open Market Committee raised its interest rate target range by 25 basis points to 3.75%–4.00% at its September meeting, the first hike since July 2023. The interest rate decision was unanimous. In a change to its previous statement, the FOMC noted that the action would support a timelier return to the committee’s 2% goal.

In the press conference following the meeting, Federal Reserve Chairman Kevin Warsh said that economic activity continues to expand at a solid pace, with domestic spending staying resilient and job gains keeping pace with the workforce while inflation remains elevated. Chairman Warsh noted the economy appears to be strengthening, with new hiring, private-sector earnings and business capital investment all improving in recent months. He reaffirmed that he would be hard-pressed to describe broad financial conditions as restrictive and that this view was shared broadly by the committee, so they removed a dose of accommodation.

The FOMC’s summary of economic projections, which maps out the Federal Reserve’s expectations for where interest rates may be headed in the future, signaled a more hawkish stance compared to the June summary. Zero Federal Reserve officials project there will be rate cuts in the remainder of 2026, and just two predict this will be the sole rate hike this year. At the same time, 12 officials anticipate an additional 25-basis-point hike by the end of 2026, while four expect the target rate to be 50 basis points higher. The projections show that officials still expect inflation to remain elevated, averaging 3.7% in 2026, more so than the 3.6% average projected in June. At the same time, the projections show officials expect real GDP to rise slightly more in 2026 than previously anticipated.