Fed Raises Rates to 3.75–4% for First Time Since 2023

The Federal Reserve raised its benchmark interest rate by 25 basis points to a range of 3.75–4 percent on September 16, 2026, marking its first increase in over three years. The decision was unanimous, with all 12 voting members of the Federal Open Market Committee (FOMC) supporting the move. The last rate hike occurred in July 2023, followed by three cuts in 2024 and three more in 2025, during which rates had been held at 3.50–3.75 percent since December 2025.

The Fed cited persistent inflation as the primary justification for the hike. Inflation has remained above the central bank's 2 percent target for more than five years, with the personal consumption expenditures (PCE) price index projected at 3.7 percent for 2026, up from a June projection of 3.6 percent. In a statement, the FOMC noted that "inflation remains elevated" and that the rate increase would "support a timelier return" to its 2 percent goal. Fed Chair Kevin Warsh emphasized at a press conference that "inflation is too high and has been for too long," warning of the risk that inflation expectations could become "unanchored" — meaning people could lose faith that prices will return to normal levels.

The economic backdrop for the decision showed resilience. The FOMC noted that "economic activity is expanding at a solid pace," with strong productivity growth, robust capital investment, and job gains keeping pace with workforce growth. The unemployment rate was projected at 4.1 percent for 2026, down from a June projection of 4.3 percent, while GDP growth was forecast at 2.3 percent, up from 2.2 percent. However, elevated geopolitical uncertainty, partially attributed to recent conflicts, continued to weigh on the outlook.

Projections from FOMC participants indicated further rate increases are likely. The median dot plot showed 12 of 18 officials expecting at least one additional quarter-point hike before year end, with four officials projecting two more increases and only two seeing no need for further moves. The expected policy rate path was raised, with the median forecast reaching 4.1 percent by end of 2026. Fed Chair Warsh did not submit his own dot plot projection, stating he was "not in the forward guidance business."

The decision drew sharp criticism from President Donald Trump, who had repeatedly called for rate cuts and had previously threatened trade retaliation if the Fed failed to lower rates. Shortly after the announcement, Trump posted on social media that rates "should be 1 percent or lower" because the United States has "the Best Credit in the World." White House press secretary Kush Desai told Fox News that Trump found the rate increase "rather unfortunate" and lacking a "particularly compelling economic case," though he reaffirmed the administration's commitment to Fed independence. Warsh, when asked about Trump's position, noted that Fed independence is "a two-way street" and that Fed officials "stay in our lane."

Market reaction was swift. Major U.S. stock indexes declined following the announcement, the 10-year Treasury bond yield rose 2 basis points to 5.012 percent, and the dollar strengthened, with the U.S. dollar index gaining 0.6 percent to 100.3. Major U.S. banks, including JPMorgan Chase, KeyCorp, and BNY, raised their prime lending rates to 7 percent from 6.75 percent, affecting credit card and personal loan rates. The Fed also reaffirmed its policy of maintaining ample reserves in the banking system.