The Federal Reserve raised its benchmark interest rate on Wednesday.
The Committee decided to raise the target range for the federal funds rate by 1/4 percentage point to 3-3/4 to 4 percent, in support of the Federal Reserve's dual mandate.
The vote was 12 to 0. The change took effect on September 17.
Why
The statement is three short paragraphs, and the reason is in the first: "Inflation remains elevated." Growth is not the worry. "Economic activity is expanding at a solid pace," it says, and "Job gains have kept pace with the workforce, and the unemployment rate has changed little."
What the increase is meant to do, in the statement's words: "Today's policy action will support a timelier return to the Committee's 2 percent goal. The Committee will deliver price stability."
How it got here
In July the committee held the rate at 3-1/2 to 3-3/4 percent, but three members, Hammack, Kashkari and Logan, dissented because they wanted a quarter-point increase then. In September the whole committee moved to where they had been. There were no dissents.
What the Fed now expects
The committee's projections, set against the ones it published in June (medians across 18 officials):
| 2026 | 2027 | Longer run | |
|---|---|---|---|
| Federal funds rate, year end | 4.1% (June 3.8%) | 4.1% (June 3.6%) | 3.2% (June 3.1%) |
| Inflation (PCE) | 3.7% (June 3.6%) | 2.3% | 2.0% |
| Core inflation | 3.4% (June 3.3%) | 2.5% | — |
| Unemployment | 4.1% (June 4.3%) | 4.1% (June 4.3%) | 4.2% |
| Economic growth | 2.3% (June 2.2%) | 2.4% (June 2.3%) | 2.0% |
The biggest change is 2027. In June the officials expected rates to be falling by then, to 3.6 percent. Now they expect them to stay at 4.1 percent.
Is another increase coming?
The Fed does not say. Its dot plot, where each official marks where they think the rate should be at the end of each year, does show where they are leaning. The new range's midpoint is 3.875 percent. For the end of 2026:
- 12 officials put the rate at 4.125 percent, one more quarter-point increase.
- 4 put it at 4.375 percent, two more.
- 2 put it at 3.875 percent, where it is now.
That is this desk's reading of the Fed's own chart, not a decision. Two meetings remain this year, October 27 and 28 and December 8 and 9.
The other rates that moved
- Interest the Fed pays banks on reserves: 3.90 percent.
- The discount rate, what banks pay to borrow directly from the Fed: 4.0 percent.
- The overnight reverse repo rate: 3.75 percent.
What the Fed did not say
The statement, the implementation note and the projections do not mention mortgages, credit cards, car loans or savings accounts. Rates on those are set by lenders and markets, which take their cue from this rate. How far and how fast they follow is not something these documents address. The statement also dropped July's reference to "the conflict in the Middle East"; it now says only "geopolitical developments".