Key facts
- The Federal Reserve raised its benchmark interest rate to a target range of 3.75% to 4%.
- Fed officials forecast one more rate hike this year.
- Policymakers increased their inflation outlook for 2026 and beyond.
- GDP growth this year is projected at 2.3%, up from 2.2% in June.
- The unemployment rate is expected to be 4.1% by year-end and remain there through 2029.
The Federal Reserve increased its benchmark interest rate to a target range of 3.75% to 4%, signaling that borrowing costs may remain elevated as policymakers grapple with persistent inflation. The move, a quarter-percentage-point hike, was widely anticipated.
Federal Reserve officials also raised their inflation projections for 2026 and beyond, indicating a potentially longer period of higher rates. Their updated forecasts suggest one more rate increase this year, with the federal funds rate expected to remain at 3.2% in the long run. This contrasts with earlier projections that anticipated a rate cut in 2027.
The central bank's decision comes amid concerns over stubborn inflation, partly fueled by high energy prices linked to the ongoing conflict in the Middle East. Economists predict that these inflationary pressures could lead the Fed to further tighten monetary policy. Despite President Trump's calls for lower rates, the Fed's primary tool for curbing inflation is to increase borrowing costs, which tends to slow economic activity and temper price increases.
Consumer borrowing costs, including mortgages and other loans, have already begun to trend higher, even before this latest rate adjustment. Inflation reached a 40-year peak of 9.1% in June 2022, prompting a series of rate hikes that concluded in July 2023. Since then, the Fed had either held rates steady or reduced them until this latest increase.