The US Federal Reserve raised its benchmark interest rate by 25 basis points at its September 17 meeting, taking the target range to 3.75%–4%. Before the decision, the rate stood at 3.5%–3.75%. It was the first increase in borrowing costs in three years.
The move was broadly in line with market expectations. According to the source, traders had assigned a probability of more than 90% to a rate increase. The Fed last raised rates on July 26, 2023, when it lifted the range to 5.25%–5.5%.
The decision was unanimous, with all 12 votes in favor. In its updated macroeconomic projections, the Fed said PCE inflation would reach 3.7% by the end of 2026, while core inflation would be 3.4%. The median forecast from FOMC participants suggests the policy rate will reach 4.1% by year-end, implying one more 0.25 percentage-point increase to a 4%–4.25% range. The regulator also does not expect further rate cuts at least until the end of 2027.
The decision comes amid persistent inflationary pressure. The Fed’s preferred PCE price index rose 3.7% year-on-year in June and July, above the regulator’s 2% target. Additional risks have come from oil prices climbing above $100 a barrel because of the conflict in the Middle East, US government debt rising above $40 trillion, and the yield on 10-year Treasury bonds moving above 5%, the highest level since 2007.
The increase was the first under new Fed Chair Kevin Warsh, whose nomination was put forward by US President Donald Trump. Trump had previously pushed for rates to be cut to around 1% and recently threatened to halt trade with countries running trade surpluses against the US if the Fed did not lower borrowing costs.
