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

The US 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 rate 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; the Fed had cut rates three times in 2024 and three times in 2025 before reversing course.

The Fed cited persistent inflation that has remained above its 2 percent target for more than five years as the primary rationale. In a statement, the FOMC noted that while economic activity is expanding at a solid pace and productivity growth remains strong, "inflation remains elevated." Fed Chair Kevin Warsh emphasized that "inflation is too high and has been for too long" and warned of the risk that inflation expectations could become "unanchored"—causing people to lose faith that prices would normalize. The Fed said the rate increase would support a timelier return to the 2 percent inflation goal.

Projections released by Fed policymakers suggest at least one additional rate increase before year end. Of 18 participants in the FOMC, 16 projected at least one more 25-basis-point hike by December 2026, with 12 of the 12 voting members expecting the rate to reach 4–4.25 percent by year end. The Fed's economic projections showed median US GDP growth of 2.3 percent in 2026, up from the prior June projection of 2.2 percent. Unemployment was projected at 4.1 percent for both 2026 and 2027, down from the June estimate of 4.3 percent. Inflation, measured by the personal consumption expenditures price index, was projected at 3.7 percent in 2026, up from the June forecast of 3.6 percent, and remained at 2.3 percent for 2027.

The decision drew swift criticism from President Donald Trump, who posted on Truth Social that interest rates "should be 1 percent or lower." Trump had previously threatened in early September to halt trade with countries running trade surpluses with the US if the Fed failed to cut rates. White House spokesman Kush Desai told Fox News the rate increase was "rather unfortunate" and lacked a "particularly compelling economic case," though he reaffirmed the administration's stated commitment to Fed independence. Warsh, who was appointed by Trump after Jerome Powell's term ended earlier in 2026, defended the decision as "sober" and "responsible," noting that the US economy was robust enough to absorb the increase.

The rate hike immediately rippled through financial markets. Major US stock indexes declined, and the 10-year Treasury yield rose 2 basis points to 5.012 percent. Major US banks—JP Morgan, KeyCorp, and BNY—raised their prime lending rate to 7 percent from 6.75 percent, affecting rates on mortgages, auto loans, and credit cards. The US dollar index gained 0.6 percent to 100.3. Central banks in the UAE and Bahrain also raised rates by 25 basis points in response, and analysts widely expected further tightening globally. The FOMC has two additional meetings scheduled for 2026, in October and December.