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Informist, Wednesday, Sept. 16, 2026

NEW DELHI – The US Federal Open Market Committee raised interest rates in the world's largest economy for the first time in over three years Wednesday, as was widely expected. The 12-member panel voted unanimously to hike the Fed funds target range by 25 basis points to 3.75-4.00% to curb inflation that remains well above its target.

"Inflation remains elevated. Today's policy action will support a timelier return to the Committee's 2% goal," the FOMC statement said. "The Committee will deliver price stability." 

The Summary of Economic Projections released along with the statement showed the median estimate of US Federal Reserve officials was that the target rate would be raised by another 25 bps in the remainder of 2026. The FOMC is scheduled to meet twice until the end of the year, in November and December. However, the median forecast showed that there would be no further rate hikes needed in 2027, with the rate to remain in the 4.00-4.25% band by the end of next year as well. Following the decision, the 10-year US Treasury yield was little changed at 4.97%.

Of the 18 respondents, four see another 50 bps of rate increases in 2026 while two see the policy repo rate remaining unchanged at the current level. By the end of 2027, eight see the target range at 4.25-4.50% while four see it lower than the current rate. Notably, US Fed Chair Kevin Warsh does not provide forward guidance through these projections.

As has been the case since Warsh took over as head of the US central bank in May, the policy statement was succinct. The committee noted the rate increase was in support of the Fed's dual mandate of maximum employment and price stability. Job gains had kept pace with the workforce and the panel noted that the unemployment rate had hardly changed. In August, the unemployment rate was unchanged at 4.1% while CPI inflation rose 3.4% on year, well above the Fed's mandate of 2%.

Economic activity was expanding at a solid pace and domestic spending had been resilient despite the high level of uncertainty, some of which stemmed from geopolitical developments, the FOMC said. Productivity growth was also strong while capital investment was robust. The committee also decided to continue its policy of maintaining ample reserves in the banking system, signalling comfortable liquidity conditions.

The economic projections showed the increasing confidence in the economy. The median forecast showed annual GDP growth in the December quarter of 2026 and 2027 up 10 basis points each to 2.3% and 2.4%, respectively. Meanwhile, the unemployment rate is seen steady at 4.1% in both scenarios, down 20 bps from the previous projections in June. Core personal consumption expenditures inflation, the Fed's preferred inflation gauge, is seen averaging 3.4% in the December quarter. The forecast is up marginally from June. The forecast for inflation at the end of 2027 was unchanged at 2.5%, but it is not expected to return to the 2.0% target until 2029, according to the median projection.  End

Reported by Aaryan Khanna

Edited by Rajeev Pai

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