Fed hikes rates by 25 basis points to 3.75%-4%: unanimous 12-0 vote and a rewritten statement

The Federal Reserve raised the target range for the federal funds rate by 25 basis points to 3.75%-4.00% from 3.50%-3.75%, in a decision approved unanimously: the FOMC statement was released on a 12-0 vote. It is the first hike since July 2023 and it follows five consecutive meetings this year with rates left unchanged, under Chair Kevin Warsh. The statement says that "inflation remains elevated" and that "today's policy action will support a timelier return to the Committee's 2 percent goal", closing with a pledge to deliver price stability. In July the decision passed 9-3, with Beth Hammack, Neel Kashkari and Lorie Logan preferring an immediate hike: this time the camp pushing for higher rates got its move and the dissent disappeared from the vote.

A comparison with the July 29 statement shows the official language rewritten in three places. The first concerns supply shocks: in July the Committee wrote that inflation remained elevated relative to its 2 percent goal "in part reflecting supply shocks that have driven price increases in certain sectors, including energy"; in the September version that phrase is gone and only the statement that inflation remains elevated survives. The second concerns geopolitics: the reference to "the conflict in the Middle East" has been replaced by the broader phrase "geopolitical developments", while the Committee notes that uncertainty remains elevated but "domestic spending has been resilient". The third is the removal of the "despite elevated uncertainty" that opened July's assessment of activity: the Fed now says economic activity is expanding at a solid pace, with strong productivity growth and robust capital investment.

The updated economic projections push the rate path higher. The median federal funds rate projection for the end of 2026 rises to 4.1% from 3.8% in June, a level consistent with one more 25-basis-point hike by December: two meetings remain, in October and December, and the market prices further tightening there. The 2027 median climbs to 4.1% from 3.6% and the 2028 median to 3.9% from 3.4%, both 50 basis points above June, while the longer-run rate moves to 3.2% from 3.1%. On the economy, the Fed now sees 2026 real GDP growth at 2.3% from 2.2%, unemployment at 4.1% from 4.3%, PCE inflation at 3.7% from 3.6% and core PCE at 3.4% from 3.3%. The message is higher for longer: stronger growth, a firmer labour market and slightly higher inflation justify a restrictive policy path for longer.

The market expected the move: before the announcement futures assigned the hike a probability close to 90%, and the Fed delivered exactly the 25 basis points. The immediate reaction was a stronger dollar across the major currencies, with the 10-year Treasury yield slipping to 4.957%, about 4 basis points lower on the day, the 30-year down around 5 basis points and the S&P 500 up 0.3%. Futures now price 28 basis points of additional hikes by year-end, against 26 basis points before the announcement. At the press conference Warsh gave three reasons for the decision: an improving labour market, no improvement in inflation trends and geopolitical developments. The Chair added that inflation is too high and has been for too long, that August PCE is probably around 3.6% with core PCE at 3.2%, and that he would be hard-pressed to describe broad financial conditions as restrictive. Asked whether the hike was market-led, Warsh said the market sometimes tries to prejudge the Fed's outcomes and that he observes prices, but that today was the Committee's own decision.

The open question is how much of the hike was already in the price and what it will take to move again. With inflation above target for more than five years and WTI still above 106 dollars, the risk that the Fed has to act again has not been retired: traders also read the unanimous vote as a sign of political independence and as an opening for a further hike rather than the end of the cycle. What remains to be seen is the durability of household spending, which the statement calls resilient, and the effect of the hike on the long end of the curve, where yields kept falling, helped by oil.

Sources

• Federal Reserve — FOMC statement, September 16, 2026
• Federal Reserve — FOMC statement, July 29, 2026
• investingLive — FOMC rate decision: Fed hikes for the first time in three years
• investingLive — Fed dot plot signals another 2026 rate hike
• Fox Business — September FOMC: Fed hikes interest rates for the first time since 2023
• Benzinga — Fed raises interest rates by 0.25% for the first time since 2023