The U.S. Federal Reserve (Fed) raised its policy rate by 25 basis points on September 16, 2026. The 0.25-percentage-point increase was the Fed’s first rate hike since summer 2023 and also marked the first rate change during Kevin Warsh’s tenure.
Price increases above the Fed’s 2% inflation target were cited as the main reason for the new tightening step. Continued price pressures raised the possibility of further monetary tightening.
Rate hikes during 2022-2023
The Fed implemented 10 rate hikes between March 2022 and June 2023 to bring high inflation under control. The increases 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%. Rates rose by 50 basis points in May 2022, while all four meetings held between June and November 2022 resulted in 75-basis-point increases.
Rates were raised by 25 basis points at each of the three meetings held between February and May 2023. With its final hike on July 26, 2023, the Fed brought the policy rate to a range of 5.25%-5.50%.
Impact of the new hike on borrowing and markets
The Fed cut interest rates after July 2023 and kept them unchanged. For that reason, the decision taken on September 16, 2026, is viewed as a new tightening move after a long interval. Whether the increase will be a one-time move will depend on the Fed’s guidance for its upcoming meetings.
The new rate hike is expected to raise borrowing costs for credit cards, variable-rate loans, commercial loans and housing finance. Savers, meanwhile, may benefit from higher deposit returns.
Higher interest rates are intended to reduce inflation by slowing consumption and investment, but they may also put pressure on economic growth and employment. The decision is also significant for the value of the U.S. dollar, Treasury bond yields, global risk appetite and emerging-market economies.
How the Fed balances the pressure of interest rates on economic growth and employment while fighting inflation will shape its monetary policy steps going forward.
