Fed Hikes Rates by 25 Basis Points for First Time Since 2023

The Federal Reserve raised its benchmark interest rate by 25 basis points on Wednesday. This marks the first increase since July 2023. The new target range for the federal funds rate is 3.75% to 4.00%. The Federal Open Market Committee voted 12-0 for this action. Inflation remains above the central bank's 2% target. The move aims to restore price stability.

Updated projections show 16 of 18 FOMC participants expect at least one more hike this year. Four officials see two additional increases as possible. No further hikes are penciled in after 2026. The dot plot forecasts a single rate cut in 2028. At least one more cut is expected in 2029. Fed Chairman Kevin Warsh did not submit a personal projection.

Inflation Forecasts Revised Higher

The Fed raised its inflation forecasts for this year. Headline PCE inflation is now projected at 3.7%. Core PCE inflation stands at 3.4%. Both figures are up 0.1 percentage point from June estimates. The 2% inflation target is not expected to be met until 2029. Officials noted that inflation remains elevated.

The committee has shifted toward a hawkish stance for months. At the July meeting, three officials dissented in favor of an immediate hike. The June meeting saw a unanimous hold but hawkish projections. Nine of 18 officials favored at least one hike by year-end. This trend continued into the current decision cycle.

Market Expectations And Yields

Markets priced in a better than 90% chance of a hike. This expectation was driven by elevated inflation and a resilient labor market. Oil prices topped 100 dollars a barrel amid the Iran conflict. Fed Chairman Warsh’s speech at Jackson Hole accelerated the shift. The 10-year Treasury yield rose by about 25 basis points since August 28. The average 30-year fixed mortgage rate reached 7.19%.

Policy Stance Remains Focused On Stability

The post-meeting statement declared that the action brings the country closer to its goals. The committee affirmed its commitment to delivering price stability. GN auto markets/bonds: interest rates noted the decisive vote. The board prioritized control over persistent price pressures. Future decisions will depend on incoming economic data.