The Federal Reserve raised its benchmark interest rate by a quarter percentage point on September 16, 2026, marking the central bank’s first increase in more than three years. The Federal Open Market Committee voted 12-0 to set the federal funds target range at 3.75% to 4.00%, ending a stretch of 1,148 days without a hike.

The decision followed a prolonged period of holds and cuts that had brought the target range down from a peak of 5.25%-5.50% after the previous increase on July 26, 2023. By mid-2026 the range stood at 3.50%-3.75%. Wednesday’s move returns policy to a modest tightening stance while inflation continues to run above the Fed’s longer-run 2% objective.

Statement Highlights Economic Strength and Persistent Inflation

In its accompanying statement the Committee said economic activity is expanding at a solid pace. Domestic spending has remained resilient even as uncertainty stays elevated, partly because of geopolitical developments. Productivity growth is strong and capital investment is robust. Job gains have kept pace with the expansion of the labor force, and the unemployment rate has changed little.

Inflation, however, remains elevated. Officials stated that the policy action will support a timelier return to the 2% goal and that the Committee will deliver price stability. The text no longer attributed recent price pressures primarily to supply shocks in certain sectors, a change from earlier communications.

Updated Projections Point to Further Tightening

Fresh economic projections released with the decision show most policymakers expect additional firming. Of the 18 officials who submitted forecasts, 16 anticipate at least one more quarter-point increase this year; four see two further hikes and two see none. The median projection for the year-end 2026 federal funds rate stands at 4.1%, consistent with one additional move. The same median level is projected for the end of 2027. Rate cuts are not expected until 2028, with the longer-run rate revised slightly higher to 3.2%.

Inflation forecasts were raised. Headline personal consumption expenditures inflation is now projected at 3.7% for 2026, up 0.1 percentage point from the June estimate, while core PCE is seen at 3.4%. Officials do not expect inflation to reach the 2% target until 2029. Real GDP growth for 2026 was lifted to 2.3% from 2.2%, and the unemployment rate forecast was lowered to 4.1% from 4.3%.

Federal Reserve Chair Kevin Warsh, who does not submit an individual rate projection, is scheduled to hold a press conference to discuss the outlook.

Economists React to the Unanimous Decision

KPMG Chief Economist Diane Swonk described the increase as the start of a broader tightening process. She noted that wage growth has slowed in some sectors, including those tied to artificial intelligence, and said the current policy rate remains below her estimate of neutral even as the neutral rate itself may be rising. Former Federal Reserve Vice Chairman Richard Clarida pointed to the 12-0 vote as carrying a clear signal of Committee unity.

Markets had widely anticipated the move after stronger-than-expected inflation data and a sharp rise in oil prices linked to geopolitical tensions. Equity indexes finished higher and bitcoin traded above the $76,000 level in the hours after the announcement. The U.S. dollar index moved above 100 for the first time since mid-August.

The next FOMC meetings are scheduled for October and December, when officials will reassess the path of policy against incoming data on inflation, employment and growth.