Photo taken on Sept. 16, 2026 shows the U.S. Federal Reserve building in Washington, D.C., the United States. The U.S. Federal Reserve on Wednesday raised its target federal funds rate by 25 basis points to a range of 3.75 percent to 4 percent to address persistent inflation, marking its first interest rate hike since July 2023. (Xinhua/Li Rui)
The U.S. Federal Reserve on Wednesday raised its target federal funds rate by 25 basis points to a range of 3.75 percent to 4 percent to address persistent inflation, marking its first interest rate hike since July 2023.
"Economic activity is expanding at a solid pace. While uncertainty remains elevated owing, in part, to geopolitical developments, domestic spending has been resilient. Productivity growth is strong, and capital investment is robust. Job gains have kept pace with the workforce, and the unemployment rate has changed little," said the Federal Open Market Committee (FOMC) in a statement.
In support of the Federal Reserve's dual mandate, "the Committee decided to raise the target range for the federal funds rate by 1/4 percentage point to 3-3/4 to 4 percent," the FOMC said.
The committee reaffirmed "its policy of maintaining ample reserves in the banking system."
"Inflation remains elevated. Today's policy action will support a timelier return to the Committee's 2 percent goal. The Committee will deliver price stability," it reiterated.
All 12 FOMC members voted in favor of the rate hike.
In conjunction with the FOMC meeting held on Sept. 15-16, participants also submitted their projections of the most likely outcomes for real GDP growth, the unemployment rate and inflation for each year from 2026 to 2029 and over the longer run.
The Fed's Board members and Federal Reserve Bank presidents projected median U.S. GDP growth of 2.3 percent in 2026, up from the June projection of 2.2 percent. The median unemployment rate was projected at 4.1 percent in 2026, down from the June projection of 4.3 percent.
For 2027, participants raised their GDP growth projection to 2.4 percent from 2.3 percent and lowered their unemployment rate projection to 4.1 percent from 4.3 percent.
As for inflation, as measured by the personal consumption expenditures price index, FOMC participants projected it at 3.7 percent in 2026, up from the June projection of 3.6 percent. The projection for 2027 remained unchanged at 2.3 percent.
The participants defined "appropriate monetary policy" as the future path of policy that best satisfies their interpretation of the statutory mandate to promote maximum employment and price stability.
"The plain fact is that inflation is too high and has been for too long," Fed Chair Kevin Warsh said at a press conference after the FOMC meeting. He has said that the risk is that people's inflation expectations become "unanchored," which means people lose faith that inflation may return to normal.
"The Committee's unanimous vote shows our resolve to achieve price stability on a timelier basis," Warsh said.
Warsh put a very positive spin on the interest rate hike, saying a robust and resilient economy can handle a quarter-point hike.
But he did not indicate whether an aggressive rate-hiking cycle was on the way.
"I'm not in the forward guidance business," he said.
On AI's potential economic impact, Warsh said the Fed has established a task force to study the issue.
Responding to a question about President Donald Trump's calls for interest rate cuts, Warsh said Fed independence is a "two-way street" and that Fed officials "stay in our lane."
In early September, Trump threatened to completely stop trade with countries running trade surpluses with the United States should the Fed fail to cut rates, triggering the Fed independence issue.
Following the Fed's decision to raise interest rates, major U.S. stock indexes turned lower. The 10-year Treasury bond yield rose 2 basis points to 5.012 percent, while the 30-year yield fell 0.5 basis points to 5.357 percent. The U.S. dollar index gained 0.6 percent to 100.3.
Market analysts viewed the unanimous 12-0 vote under Warsh as a hawkish signal, suggesting that policymakers were prepared to implement at least one more rate hike before the end of the year.
Meanwhile, the FOMC participants' updated Summary of Economic Projections indicated that most Fed officials expected the policy rate to rise to a range of 4 percent and 4.25 percent by the end of 2026, as they sought to combat persistent inflation driven by supply shocks and geopolitical pressures.
Financial institutions, including Goldman Sachs, JPMorgan Chase and Morgan Stanley, also adopted a more hawkish stance, anticipating further monetary tightening following the Fed's rate hike.
The rate hike would reinforce the Fed's credibility, said Shawn DuBravac, chief economist at the Global Electronics Association, in an interview with CNBC. "It is a shift in policy direction."
"I would expect Chair Warsh to keep further hikes on the table while avoiding a commitment to a prolonged tightening cycle," DuBravac said.
Nevertheless, some economists have questioned the fundamental necessity of the hike, arguing that recent increases in core prices stem largely from temporary or supply-side shocks rather than an overheated, demand-driven domestic economy.
The Fed has two more meetings scheduled before the end of 2026, leaving room for further rate hikes if inflation remains elevated.
U.S. Federal Reserve Chair Kevin Warsh attends a press conference in Washington, D.C., the United States, Sept. 16, 2026. The U.S. Federal Reserve on Wednesday raised its target federal funds rate by 25 basis points to a range of 3.75 percent to 4 percent to address persistent inflation, marking its first interest rate hike since July 2023. (Xinhua/Li Rui)
U.S. Federal Reserve Chair Kevin Warsh attends a press conference in Washington, D.C., the United States, Sept. 16, 2026. The U.S. Federal Reserve on Wednesday raised its target federal funds rate by 25 basis points to a range of 3.75 percent to 4 percent to address persistent inflation, marking its first interest rate hike since July 2023. (Xinhua/Li Rui)
U.S. Federal Reserve Chair Kevin Warsh attends a press conference in Washington, D.C., the United States, Sept. 16, 2026. The U.S. Federal Reserve on Wednesday raised its target federal funds rate by 25 basis points to a range of 3.75 percent to 4 percent to address persistent inflation, marking its first interest rate hike since July 2023. (Xinhua/Li Rui)
U.S. Federal Reserve Chair Kevin Warsh attends a press conference in Washington, D.C., the United States, Sept. 16, 2026. The U.S. Federal Reserve on Wednesday raised its target federal funds rate by 25 basis points to a range of 3.75 percent to 4 percent to address persistent inflation, marking its first interest rate hike since July 2023. (Xinhua/Li Rui)
U.S. Federal Reserve Chair Kevin Warsh attends a press conference in Washington, D.C., the United States, Sept. 16, 2026. The U.S. Federal Reserve on Wednesday raised its target federal funds rate by 25 basis points to a range of 3.75 percent to 4 percent to address persistent inflation, marking its first interest rate hike since July 2023. (Xinhua/Li Rui)
U.S. Federal Reserve Chair Kevin Warsh attends a press conference in Washington, D.C., the United States, Sept. 16, 2026. The U.S. Federal Reserve on Wednesday raised its target federal funds rate by 25 basis points to a range of 3.75 percent to 4 percent to address persistent inflation, marking its first interest rate hike since July 2023. (Xinhua/Li Rui)
