Fed Raises Interest Rate by 25 Basis Points in September 2026

The US Federal Reserve (Fed) increased the policy rate by 25 basis points at the September meeting of the Federal Open Market Committee (FOMC), in line with market expectations.

With the decision taken by the FOMC with a vote of 12-0, the target range of the federal funding rate was increased from 3.50-3.75 percent to 3.75-4 percent.

Thus, the Fed increased interest rates for the first time since July 2023. With the 25 basis point increase made by the Fed in its July 2023 meeting, the policy rate increased to the range of 5.25-5.50 percent. This level was the highest interest rate since 2001.

In its decision text, the Fed reported that economic activity was expanding at a solid pace.

It was stated in the text that uncertainty remained high, partly due to geopolitical developments, and that domestic expenditures were resilient. It was noted that productivity growth was strong and capital investments were solid.

Regarding the employment market, it was stated that job gains have kept pace with the labor force and the unemployment rate has changed little.

The Fed emphasized that inflation remains high.

In the decision text, it was stated that today's policy step will support the Fed's 2 percent inflation target to be achieved in a more timely manner.

DOT CHART INDICATES ANOTHER INCREASE

Updated projections published by the Fed on Wednesday revealed that the majority of officials think another interest rate increase could be made later this year.

According to the dot chart showing individual interest rate expectations of Fed officials, 16 out of 18 participants expect another interest rate increase. While it is stated that Fed President Kevin Warsh chose not to provide a point forecast after taking office, four officials predict that two more interest rate increases are possible this year. Two officials expect interest rate increases to be limited to one increase.

However, no interest rate increase is foreseen in the projections for the following years. Authorities' expectations are shaping up to be an interest rate cut in 2028 and at least one interest rate cut in 2029.

INFLATION EXPECTATIONS HAVE INCREASED

The bank's inflation forecasts were increased from 3.6 percent to 3.7 percent for this year, while they were maintained at 2.3 percent for 2027. The Fed revised its inflation forecast from 2 percent to 2.1 percent for 2028 and set it to 2 percent for 2029.

Estimates for core inflation, which does not include variable energy and food prices, were also increased from 3.3 percent to 3.4 percent for this year, while they were left at 2.5 percent for 2027. The bank's core inflation forecast was increased from 2.1 percent to 2.2 percent for 2028 and 2 percent for 2029.

The growth forecast for the US economy was increased from 2.2 percent to 2.3 percent for this year and from 2.3 percent to 2.4 percent for 2027. The growth forecast is maintained at 2.2 percent for 2028, while it is set at 2.1 percent for 2029.

Estimates for the unemployment rate were reduced from 4.3 percent to 4.1 percent for this year and 2027, and from 4.2 percent to 4.1 percent for 2028. The unemployment rate forecast was 4.1 percent for 2029.

HE PASSED 5 TIMES IN 2026

The Fed started 2026 with a policy rate of 3.50-3.75 percent. It did not change the interest rate at its first meeting of the year, January 28. Two members opposed the decision and asked for a 25 basis point reduction.

At the meeting on March 18, the policy rate was kept in the range of 3.50-3.75 percent. At this meeting, Stephen I. Miran voted for a 25 basis point reduction.

At the meeting on April 29, the interest rate did not change and was left in the range of 3.50-3.75 percent.

At the June meeting, the FOMC kept the interest rate constant at 3.50-3.75 percent by a 12-0 vote. At the July meeting, the Fed did not change the interest rate again, but the decision was taken with a vote of 9-3. Beth Hammack, Neel Kashkari and Lorie Logan voted in support of the 25 basis point rate hike.

Thus, while the Fed kept the policy rate unchanged in the first five meetings of 2026, it increased by 25 basis points in the September meeting.