New projections show policy rate in 4.00 percent-4.25 percent range by end of 2026 and 2027
Published : 17 Sep 2026, 09:43 AM
The Federal Reserve raised interest rates on Wednesday and flagged more hikes in the coming months, with new US central bank chief Kevin Warsh joining a unanimous decision that effectively acknowledges the Trump administration's inability so far to control inflation that policymakers worry could worsen.
While President Donald Trump had promised to lower prices on his watch, the combined impact of his global import tariffs, an energy shock following the start of the US-Israeli war with Iran, and capital spending from the artificial intelligence boom has kept price pressures intense enough that the Fed felt it needed to raise its benchmark overnight interest rate by a quarter of a percentage point to the 3.75 percent-4.00 percent range.
Updated quarterly economic projections showed 16 of 18 policymakers anticipate at least one more quarter-percentage-point hike by the end of this year, with only two of them seeing rates remaining stable from here. All but one indicated they saw upside risks to inflation that they no longer described as largely arising from one-off supply shocks.
Warsh, who again did not submit rate or other economic projections, attributed the need for tighter monetary policy in part to an economy he sees as picking up speed, with strong economic and job growth adding to price pressures that no longer seem rooted in oil costs or import tariffs alone.
"There's been a pretty wide-ranging set of data, including the labor markets, that the economy has strengthened," Warsh told reporters in listing the reasons that prompted him to support a rate hike after advocating that rates should remain on hold at the Fed's Jul 28-29 meeting. "Domestic spending has been resilient, productivity growth strong, and capital investment is robust."
The rate increase was the first such move in three years and the first policy shift under the new Fed chief, who took office in late May after being selected by Trump with an expectation that he would cut rates.
"Inflation remains elevated. Today's policy action will support a timelier return to the committee's 2 percent goal," the central bank's Federal Open Market Committee said in its policy statement after the end of a two-day meeting.
Warsh, speaking in his post-meeting press conference, called the rate hike the "right decision."
"I would be hard-pressed to describe broad financial conditions as restrictive," he said. "This view was widely shared by the committee, so we removed a dose of accommodation."
Trump Responds
Trump reacted quickly, repeating what has been a standing call since returning to office in January 2025 that interest rates in the US should be slashed to perhaps 1percent, a level usually associated with Fed efforts to boost the economy out of a crisis and something that would likely be inflationary in normal times.
"Interest Rates in the United States should be 1 percent, or less, because we are the Best Credit in the World — BY FAR. Our Country is BOOMING with new Investment! If we stopped Trading with every country that we have a Deficit with, which is most of them, we would make, at least, 1.5 Trillion Dollars a year. The word 'Deficit' is nothing more than a fancy word for LOSS ... LOWER THE INTEREST RATES FOR THE UNITED STATES OF AMERICA, AND FAST!" Trump said on his Truth Social platform in comments that, while not mentioning Warsh by name, were reminiscent of the sorts of barbs the president launched routinely at former Fed Chair Jerome Powell.
The president's reaction highlighted the significance of the Fed's move under Warsh on Wednesday. In a truncated press conference, roughly 15 minutes shorter than what was typical under his predecessors, Warsh focused on the emerging evidence that convinced him inflation would not improve at an adequate pace without tighter monetary policy — a direct counter to administration officials' comments that inflation was no longer a problem or would fall on its own over time.
The dollar strengthened broadly and yields on 2-year US Treasury notes — highly influenced by Fed policy rate expectations — shot to the highest in more than two years after the release of the Fed's policy statement and projections. Yields on longer-dated bonds, meanwhile, held steady, flattening the yield curve in an initial vote of confidence that Warsh — who calls inflation a "choice" of the central bank — was at last acting on his running pledge to deliver price stability.
"The Fed has finally begun its hiking cycle, and the debate now shifts from whether rates will rise again to how many hikes lie ahead," said Seema Shah, chief global strategist at Principal Asset Management in London. "The unanimous vote shows that rising energy prices and stubborn inflation have brought even the doves on board, making a one-and-done move highly unlikely."
Indeed, rate futures markets reflect about a 90 percent probability of a follow-up quarter-percentage-point Fed rate hike by the end of this year, according to CME Group's FedWatch Tool.
The Fed's policy statement and projections show the policy rate rising to the 4.00 percent-4.25 percent range by the end of this year and ending 2027 at the same level.
Notably, the policy statement dropped a previous reference attributing current elevated inflation to "supply shocks," particularly in the energy sector, a nod to concerns among policymakers, including Warsh, that price pressures were too broad for comfort.
The rate increase was announced less than two months ahead of midterm elections that will determine whether Trump's Republicans maintain control of Congress for the final two years of his presidency. The Republicans are facing an uphill battle with voters angry about gasoline prices that are about a third higher than a year ago and interest rates on home mortgages that have been rising steadily this year. The average rate on a 30-year fixed-rate mortgage is approaching 7 percent.
Fed policymakers marked up their estimates of inflation, as measured by the Personal Consumption Expenditures Price Index, to 3.7 percent versus the 3.6 percent projected at the meeting in June. Inflation is not projected to return to the 2 percent target until 2029, a year later than previously expected.
Economic growth was marked up slightly from 2.2 percent to 2.3 percent , while the unemployment rate is seen ending the year at 4.1percent, versus the 4.3 percent projected in June.
