The U.S. Federal Reserve (Fed) raised its policy rate by 25 basis points on September 16, 2026, delivering its first rate hike since the summer of 2023. The decision marked the first rate change of the Kevin Warsh era.
Price pressures above the Fed's 2% inflation target were the main reason for the new tightening step. The rate hike is expected to put upward pressure on borrowing costs for credit cards, variable-rate loans, commercial loans and housing finance.
Tightening in 2022-2023
While combating high inflation, the Fed raised interest rates 10 times in total between March 2022 and June 2023. The increases during this period ranged from 25 to 75 basis points.
The first hike came on March 16, 2022, when the federal funds target range was raised to 0.25%-0.50%. The rate was increased by 50 basis points in May 2022, followed by four consecutive 75-basis-point hikes at meetings held between June and November 2022. At the three meetings held between February and May 2023, the rate was raised by 25 basis points.
After its final hike on July 26, 2023, the Fed brought the policy rate to a range of 5.25%-5.50%. After subsequently cutting rates and keeping them unchanged, the central bank took a tightening step again with its September 16, 2026 decision following a long interval.
Impact of the rate decision on markets
Whether the new hike will be a one-off will depend on the guidance the Fed provides for its upcoming meetings. While higher rates aim to reduce inflation by slowing consumption and investment, they may put pressure on economic growth and employment.
Savers may benefit from higher deposit returns. The decision also has implications for the value of the U.S. dollar, Treasury yields, global risk appetite and emerging-market economies.
How the Fed balances the pressure that interest rates place on economic growth and employment while combating inflation will shape the framework for its subsequent policy steps.
