The Federal Reserve raised its benchmark rate by a quarter point on Sept. 16, voting 12-0 to increase the federal funds rate to a target range of 3.75 percent to 4 percent, the first rate hike since July 2023.
Chair Kevin Warsh said at a post-meeting news conference that inflation is still too high.
In its post-meeting statement, the Fed said economic activity is expanding at a solid pace and that domestic spending has been resilient despite elevated uncertainty stemming in part from geopolitical developments. It said productivity growth is strong, capital investment is robust, job gains have kept pace with the workforce and the unemployment rate has changed little.
What the rate change means
The federal funds rate is the benchmark interest rate that influences borrowing costs across the U.S. economy, including mortgage rates, corporate lending, auto loans and consumer credit. A move to 3.75-to-4 percent is the continuation of a rate-hiking cycle that began in March 2022 and had been paused since July 2023.
The 12-to-0 vote indicates consensus among Fed officials on the decision. A divided vote typically signals internal debate about whether to move. A unanimous vote of this kind suggests the committee was aligned on both the timing and size of the increase.
The inflation context
August consumer prices held at 3.4 percent for the second consecutive month, remaining above the Fed’s 2 percent target. Core, which excludes food and energy, slowed to 2.4 percent. Warsh’s statement that prices remain too high for the Fed’s inflation target is consistent with the unanimous vote to raise rates rather than hold.
The U.S.-Iran conflict, which began in February, has kept oil prices elevated and added uncertainty to the price outlook that the Fed referenced in its statement’s mention of geopolitical developments.
What comes next
The Fed’s next policy meeting will determine whether the hiking cycle continues or whether the committee opts to hold at the new level. Officials have consistently said their decisions are data-dependent and will be guided by subsequent inflation readings, employment data and broader financial conditions.
The quarter-point increase brings the rate to its highest level since the current hiking cycle began, with inflation still meaningfully above the 2 percent goal. Whether the terminal rate has been reached will depend on whether the inflation rate continues to decline toward the 2 percent target over the coming months.
