The Federal Reserve Raises Interest Rate to 4.00%
The Federal Reserve raised its benchmark interest rate by 0.25% to 4.00% as expected, with the Federal Open Market Committee unanimous in its decision. This marks the first rate increase since 2023 and the first policy change under Chairman Kevin Warsh. Some key takeaways from today's meeting:
The FOMC voted unanimously to raise its benchmark overnight borrowing rate by a quarter percentage point to a range of 3.75%-4.00%.
Fed officials, through their closely watched "dot plot," signaled more tightening ahead, with 16 of 18 policymakers expecting at least one more quarter-point hike before the end of 2026, and four seeing two more. The median projection shows the policy rate ending this year in a 4.00%-4.25% range and holding there through the end of 2027.
Speaking at his press conference, Chairman Warsh said inflation is too high and has been for too long, and that recent inflation readings do not show underlying trends have meaningfully improved.
When asked whether today's move marks the start of a hiking cycle, Warsh declined to prejudge future decisions, consistent with his approach of not providing forward guidance.
Warsh noted the decision comes as the U.S. economy appears to be strengthening, pointing to new hiring, private sector earnings, and business investment. He also acknowledged the Fed has limited ability to address higher energy prices, a key source of current inflation.
Inflation remains elevated, with annual CPI inflation running at 3.4% in August and the Fed's preferred measure (PCE) estimated at around 3.6%.
The Fed's inflation outlook (PCE) for the end of 2026 was raised to 3.7% from 3.6% in June, and inflation is not expected to return to the 2% target until 2029, a year later than previously projected.
The economic outlook was marked up, with growth now projected at 2.3% (from 2.2%) and the unemployment rate expected to end the year at 4.1%, down from the 4.3% projected in June.
Warsh and the FOMC remain committed to returning inflation to 2% and will continue to monitor economic data to inform their decisions.
The next FOMC rate decision will be October 28th.