By The U.S. Federal Reserve raised its benchmark interest rate by a quarter percentage point on Wednesday, taking the federal funds target range to 3.75%-4%, as policymakers seek to bring elevated inflation back toward their 2% goal.
The Federal Open Market Committee approved the Fed rate hike unanimously, 12-0, according to the Federal Reserve’s statement following its September 15-16 meeting.
The increase was the first by the U.S. central bank since July 2023, marking a shift back toward tighter monetary policy after a period in which policymakers had moved rates lower.
The Fed said economic activity was expanding at a solid pace, with resilient domestic spending, strong productivity growth and robust capital investment. It added that job gains had kept pace with the workforce and that the unemployment rate had changed little.
But inflation remains above the central bank’s 2% objective.
“Inflation remains elevated,” the Federal Reserve said, adding that Wednesday’s policy action was intended to support a “timelier return” to its 2% goal.
The latest economic projections indicate that most Federal Reserve policymakers expect interest rates to move higher again before the end of 2026.
The median projection for the federal funds rate at the end of 2026 was 4.1%, compared with the current target range midpoint of 3.875%. Sixteen of the 18 policymakers projected a rate of at least 4.125%, while two projected rates around the current level.
The projections put the median federal funds rate at 4.1% at the end of 2027, before declining to 3.9% in 2028 and 3.6% in 2029. The longer-run median was 3.2%.
The projections are not commitments by the Federal Reserve. They represent individual policymakers’ assessments of the appropriate policy path based on economic conditions and their assumptions about future developments.
The Fed’s latest projections showed its preferred inflation measure, the personal consumption expenditures price index, rising 3.7% in 2026, up from a 3.6% projection in June.
The central bank expects PCE inflation to slow to 2.3% in 2027, 2.1% in 2028 and 2% in 2029. Core PCE inflation, which excludes food and energy prices, was projected at 3.4% in 2026, 2.5% in 2027 and 2.2% in 2028.
The projections suggest that policymakers expect inflation to decline gradually rather than return immediately to the Fed’s 2% target.
The central bank also raised its economic growth outlook. Median projections put real gross domestic product growth at 2.3% in 2026, followed by 2.1% in 2027 and 2.0% in 2028 and 2029.
The unemployment rate was projected at 4.1% in 2026 and 2027, before edging up to 4.2% in 2029.
The federal funds rate is the benchmark for overnight lending between banks, but changes in the rate can influence borrowing costs across the wider economy.
Higher policy rates can feed through to interest rates on consumer and business loans, credit cards and other forms of borrowing. They can also affect savings yields, bond markets, equity valuations and the cost of financing investment.
For investors, the Fed rate hike is particularly important because U.S. interest rates influence global capital flows. Changes in the relative attractiveness of U.S. assets can affect currencies, government bonds, emerging markets and other financial assets.
The impact is also relevant outside the United States. Higher U.S. rates can influence the cost of dollar financing and investor demand for assets in emerging and frontier markets.
For African economies, movements in U.S. interest rates are closely watched because international investors consider U.S. Treasury yields when allocating capital across global markets.
The Fed’s decision comes as policymakers confront an unusual combination of relatively solid economic growth and inflation that remains above target.
The central bank said uncertainty remained elevated, citing geopolitical developments, while describing domestic spending as resilient.
The September decision therefore leaves financial markets focused on incoming inflation, employment and economic-growth data for clues about the next stage of monetary policy.
