Federal Reserve hikes interest rates for first time since 2023 amid stubborn inflation

This story about the September 2026 FOMC meeting will be updated with further details.

The Federal Reserve on Wednesday raised its benchmark interest rate for the first time in over three years amid concerns over stubborn inflation that has been driven recently by higher energy prices.

Fed policymakers voted 12-0 to raise the federal funds rate from a range of 3.5% to 3.75% to a new target rate of 3.75% to 4%. The 25-basis-point increase marks the first interest rate hike since July 2023 and comes after the Fed left rates unchanged at its first five meetings this year.

The Federal Open Market Committee (FOMC), the central bank’s panel responsible for monetary policy moves, noted that “Economic activity is expanding at a solid pace. While uncertainty remains elevated owing, in part, to geopolitical developments, domestic spending has been resilient. Productivity growth is strong, and capital investment is robust.”

“Job gains have kept pace with the workforce, and the unemployment rate has changed little. Inflation remains elevated. Today’s policy action will support a timelier return to the Committee’s 2% goal,” the FOMC added.

The FOMC’s rate hike announcement was accompanied by a summary of economic projections made by policymakers. The median member of the panel projected one more 25-basis-point rate hike this year on the so-called “dot plot” as the FOMC is set to meet again in October and December where further moves could occur. The median projection also expects the federal funds rate to remain around that level next year.

Fed Chair Kevin Warsh said that the FOMC raised interest rates in support of its dual mandate to ensure price stability and promote full employment in the economy, saying that the panel “will deliver price stability.”

“Our decision comes at a time when the American economy appears to be strengthening,” Warsh said, noting labor market data, private sector earnings and capital investment as indicators of that strength. “I would be hard-pressed to describe broad financial conditions as restrictive.”

The Fed chair noted that the unemployment rate remains low at around 4.1%, with job openings and weekly hours rising, so the “labor side of the Fed’s congressional remit is in good shape.”

“Yet for more than five years, inflation has been running above target. So our predominant focus is on the price stability side of our mandate. The plain fact is that inflation is too high and has been for too long. This summer’s inflation readings do not tell me that underlying trends have meaningfully improved,” he said.

Warsh noted that the likely change in the personal consumption expenditures (PCE) index – the Fed’s preferred inflation gauge – was likely around 3.6% in August, well above the 2% target, while core PCE and core consumer price index (CPI) data are running at about 3.2% and 2.4%, respectively.

“We at the Fed are unwavering in our vital and straightforward purpose, full employment and price stability, and a thriving American economy that sets the standard for the world,” Warsh said.

FOX Business’ Edward Lawrence asked Warsh if this was a market-led rate hike, given the odds of a rate hike were about 90% in the market’s view. The Fed chair replied that “sometimes the market tries to prejudge our outcomes, I’ll observe market prices and see what they have to say, but today was our decision.”

Warsh was asked about what prompted the central bank to move after holding steady at its previous meeting seven weeks ago and pointed to three things.

He said that improvements in the labor market led to the judgment that the economy is strengthening, adding that he hasn’t seen improvement in trends related to inflation and that geopolitical developments factored in, saying that “there’s no hiding from hotspots around the world.”

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