The Federal Reserve rate hike on Wednesday lifted the US federal funds target range by 25 basis points to 3.75%-4.00%, marking the first increase since July 2023. The decision was unanimous and came after the Fed held rates in July. The central bank said the latest move was aimed at supporting a more timely return of inflation to its 2% target.
Fed Raises 2026 Inflation and Growth Forecasts
The September projections showed the median year-end 2026 federal funds rate forecast at 4.1%, up from 3.8% in June. The supplied material describes the updated dot plot as showing two 25-basis-point hikes in 2026 and no hikes in 2027, compared with June’s projection of one 2026 hike and a 2027 cut. Another summary in the supplied material describes the decision as signalling one additional hike this year.
The Fed also raised its 2026 GDP outlook. Median PCE inflation is projected at 3.7% in 2026, 2.3% in 2027 and 2.1% in 2028, compared with 3.6%, 2.3% and 2.0% in June. Core PCE inflation is forecast at 3.4%, 2.5% and 2.2% over the same years, with inflation reaching 2% in 2029.
Unemployment forecasts were lowered to 4.1% for 2026, 2027 and 2028, from 4.3%, 4.3% and 4.2% in the June projections. Markets were still fully pricing another 25-basis-point hike before year-end.
Kevin Warsh Says Inflation Remains Too High
Fed Chair Kevin Warsh said the US economy had strengthened since policymakers last met in June, with underlying growth momentum improving and the labor market remaining essentially at full employment. At the same time, he said inflation had shown no meaningful improvement and remained above the Fed’s 2% year-on-year target.
Warsh said recent CPI and PPI data contained too many categories with six- and 12-month increases above 3%. He said the Fed had become dissatisfied with the pace of inflation and that price stability remained its primary focus.
Warsh said the September decision followed three developments since June: stronger economic and labor-market data, inflation remaining well above target during the summer, and geopolitical developments that changed the Fed’s outlook. He did not explicitly name the US-Iran conflict in the Middle East.
Rupee Extends Losses After Fed Decision
The Indian rupee settled at 95.95 against the US dollar, extending losses to a seventh straight session despite near-daily RBI intervention. Crude oil prices were near $108 a barrel. India’s foreign exchange reserves reached a record $785.7 billion.
JPMorgan, KeyCorp and BNY Mellon raised their US prime rates to 7.00% from 6.75%, effective Thursday, following the Fed’s rate move.
US President Donald Trump said US interest rates should be 1% or lower and urged the Federal Reserve to cut rates swiftly. White House spokesman Kush Desai called the Fed’s increase “regrettable” and said the administration questioned its economic justification.
Warsh said the Fed cannot control individual commodity prices such as oil or groceries, but can use policy tools to prevent relative price increases from producing broader second- and third-round inflationary effects. He also said the decision was based on economic conditions, employment trends and economic strength rather than market pressure.
Q1. What was the Federal Reserve rate hike in September 2026?
The Federal Reserve raised its federal funds target range by 25 basis points to 3.75%-4.00%.
Q2. Why did the Fed raise interest rates?
The Fed said the increase would support a more timely return of inflation to its 2% target.
Q3. What is the Fed’s 2026 inflation forecast?
The median PCE inflation forecast is 3.7% for 2026, while core PCE inflation is projected at 3.4%.
Q4. Where did the Indian rupee settle after the Fed decision?
The Indian rupee settled at 95.95 against the US dollar, marking its seventh consecutive session of losses.
Q5. What did Kevin Warsh say about inflation?
Kevin Warsh said inflation was too high, had persisted too long and had not shown meaningful improvement in its trend during the summer.
Source: Federal Reserve Official Website
