Fed returns to rate hikes after 3-year pause, raising its key interest rate by 0.25 percentage points

On Wednesday, September 16th, the Federal Reserve raised its key interest rate by 0.25 percentage points, bringing its target range to 3.75%–4.00%.

• This was the Fed's first rate increase since July 2023. All 12 voting members supported the decision (1, 2).
• Fed officials now project a median federal funds rate of 4.1% at the end of 2026, up from the 3.8% projected in June. Here are a few other key projections for 2026 (3):
  • GDP growth forecast: raised to 2.3% (from 2.2%)
  • Unemployment forecast: lowered to 4.1% (from 4.3%)
  • PCE inflation forecast: raised to 3.7% (from 3.6%)
  • Core PCE inflation: raised to 3.4% (from 3.3%)
• In their statement, officials said the economy is growing at a solid pace, and domestic spending has remained resilient, but inflation is still too high. They also called out continued uncertainty, such as geopolitical developments (1).
• Looking to the future, the Fed also raised its rate forecasts for upcoming years. The median projections are now 4.1% at the end of 2027, 3.9% in 2028, and 3.6% in 2029. The longer-term estimate is 3.2% (3).
• Additionally, the Fed raised the rate it pays banks on reserve balances to 3.90%, and raised its primary credit rate to 4.00%, effective September 17 (4).
• At a press conference yesterday, Fed Chair Kevin Warsh said that inflation has been elevated for too long, noting that recent data has not shown an improvement in the underlying trend. He added that bringing inflation under control is the Fed's main focus right now, and that stable prices are essential for long-term economic growth (5).
• Warsh declined to signal what the Fed will do next, saying future decisions depend on economic conditions. The Fed's projections, however, suggest that another rate hike could be coming yet this year. The Fed's next policy meeting is set for October 27–28 (3, 5, 6).
• In response, a White House spokesperson said the Fed's decision was "rather unfortunate." In a social media post, President Trump called instead for lowering interest rates (7).

Sources & Further Reading

1. "Federal Reserve issues FOMC statement." Federal Reserve. September 16, 2026.
2. "Federal Reserve issues FOMC statement." Federal Reserve. July, 2023.
3. "Economic projections from the September 15-16, 2026 FOMC meeting." Federal Reserve. September 16, 2026.
4. "Implementation Note issued September 16, 2026." Federal Reserve. September 16, 2026.
5. "Transcript of Chairman Warsh’s Press Conference Opening Statement." Federal Reserve. September 16, 2026.
6. "Meeting calendars and information." Federal Reserve. 2026.
7. "White House Calls Rate Increase ‘Rather Unfortunate." WSJ. September 16, 2026.