Federal Reserve Raises Interest Rates by 25 Basis Points to 4%
The US Federal Reserve raised interest rates by 25 basis points to 4% in a unanimous vote, marking the first rate hike under newly appointed Chair Kevin Warsh.
Federal Reserve Raises Interest Rate to 4%
The US Federal Reserve raised its benchmark interest rate by 25 basis points on Wednesday, moving it from 3.75% to 4% in a decision that aligned with market expectations. This marks the first rate hike since July 2023 and the first major monetary policy shift under the leadership of newly appointed Fed Chair Kevin Warsh, who assumed office on May 22.
During its previous meeting on July 29, the Fed left rates unchanged for the fifth consecutive time, following a 25 basis point cut in December 2025 from 4% to 3.75%. Since the last rate hike in July 2023, the Fed implemented six consecutive rate cuts totaling 125 basis points under former Chair Jerome Powell, lowering the rate from 5.25% to the pre-decision level of 3.75%.
FOMC Unanimously Approves Hike
The Federal Open Market Committee (FOMC) voted unanimously, 12 to 0, to approve the rate increase. "Inflation remains elevated," the committee stated in a brief release following the meeting. "Today's policy decision will help accelerate the return to the committee's 2% target. The committee will act to achieve price stability."
Despite mixed statements from Fed officials in recent weeks, markets priced in a greater than 90% probability of the rate hike, although some analysts anticipated dissenting votes. Updated projections released on Wednesday indicated that a vast majority of top Fed officials expect further rate increases later this year.
Dot Plot and Inflation Projections
The dot plot, which outlines individual rate projections by Fed officials, showed that 16 out of 18 participants expect another rate hike, with four projecting two additional increases. Only two participants foresee a pause following the current adjustment. Fed Chair Warsh opted not to submit an individual rate projection for the dot plot following his inauguration.
Projections indicate that the Fed may lower rates once in 2028 and at least once more in 2029. Officials also slightly raised their inflation forecasts for the current year, estimating the headline Personal Consumption Expenditures (PCE) price index at 3.7% and the core index at 3.4%. Both figures represent a 0.1 percentage point increase from June forecasts. The Fed does not expect inflation to return to the 2% target before 2029.
