Fed raises rates for first time in three years
The Federal Reserve hiked interest rates by 25 basis points and signaled another increase could come before year's end.
In brief
The Federal Reserve hiked interest rates by 25 basis points and signaled another increase could come before year's end. The Fed is moving to combat persistent inflation driven by oil prices and other factors, with more hikes likely on the horizon. Originally reported by CNBC.
Fed hikes rates for first time since 2023
The Federal Reserve raised its benchmark interest rate by 25 basis points to 3.75%-4%, ending a three-year pause. The FOMC voted unanimously to approve the move.
“Inflation remains elevated. Today's policy action will support a timelier return to the Committee's 2 percent goal.”
Inflation has been too high for too long
Fed Chair Kevin Warsh said inflation remains above the central bank's 2% target and has persisted longer than expected. He cited strong economic data and Middle East tensions as factors in the decision.
“Inflation has been too high for too long.”
Another hike likely before year ends
Updated projections show 16 of 18 FOMC participants expect another rate increase this year, with four seeing two more as possible. Only two officials expect the committee to stop at one hike.
Fed raises inflation outlook for 2026
The committee nudged up inflation expectations, now seeing headline PCE at 3.7% and core PCE at 3.4%, both 0.1 percentage point higher than June projections. The Fed doesn't expect to reach its 2% target until 2029.
Oil prices and tariffs driving inflation
The Fed is concerned that high energy costs from the Iran war and lingering tariff impacts could raise inflation expectations and spread through the economy. AI investment is also seen as a potential inflationary factor.
Fed haunted by transitory inflation mistake
Policymakers remember thinking pandemic-era inflation would fade on its own. Instead, prices hit 40-year highs before the Fed acted. This experience is making officials more cautious about waiting too long.
Mortgage rates surge past 7 percent
A 30-year fixed-rate mortgage hit 7.19%, up 38 basis points since Fed Chair Warsh's Jackson Hole speech on August 28. Rates are up more than a full percentage point from a year ago.
Markets rally on inflation fighting signal
The S&P 500 rose after the announcement as investors welcomed the Fed's effort to combat inflation. Treasury yields fell, signaling confidence that rate hikes will eventually bring prices under control.
Fed shows resolve after years of hesitation
Investors and analysts see the rate hike as a sign the Fed is finally taking decisive action on inflation. One analyst called it a moment when the Fed regained its spine after years of what he called Powell-era sycophancy.
“Today's FOMC could mark the moment when the FOMC regained a measure of spine.”
The short version
The Fed is moving to combat persistent inflation driven by oil prices and other factors, with more hikes likely on the horizon.
