Federal Reserve raises rates by 25 basis points, first increase since 2023
Decision taken unanimously by the FOMC under the chairmanship of Kevin Warsh; another increase is expected by the end of 2026 to combat inflation
Quick Look
- The Federal Reserve raised interest rates by 25 basis points, bringing them into the range between 3.75% and 4%, the first increase since July 2023.
- The decision was taken unanimously by the FOMC under the presidency of Kevin Warsh.
- The Fed expects another hike by the end of 2026 to combat inflation, which is expected to stand at 3.7% year-over-year by the end of the year.
AI-generated summary
Why It Matters
The last rate increase by the Federal Reserve dates back to July 2023. Since then, the FOMC had reduced rates six times for a total of 175 basis points, bringing the range between 3.50% and 3.75% before this new increase.
A rate hike now, three years after the last one, and another very likely one by the end of 2026. These are the decisions coming from the Federal Reserve, after the third meeting of the board with Kevin Warsh as president. The Fed therefore decided to raise interest rates by 25 basis points: the cost of money, in line with expectations, rises from the range between 3.50% and 3.75% to that between 3.75% and 4%. This is the first increase since July 2023: since then, before today's decision, the FOMC had reduced rates six times, for a total of 175 basis points.
The unanimous decision
From the note released at the end of the FOMC meeting it emerges that the decision to raise rates by 25 basis points to 3.75%-4% was taken with a unanimous vote (12 to zero).
The Fed sees another rate hike later this year
The note also shows that the Federal Reserve sees another rate hike by the end of the year to combat inflation. During the two-day closed-door meeting, the FOMC revised its forecasts for the US economy: inflation to 3.7% on an annual basis by the end of 2026, according to the median of the projections, compared to the 3.6% estimated at the June meeting. Benchmark interest rates will be between 4%-4.25% by the end of the year, above the level announced today.
The Fed note
Economic activity, the Fed note continues, "is expanding at a solid pace. Although uncertainty remains high, partly due to geopolitical developments, domestic spending has shown resilience". Furthermore, productivity growth "is sustained and investments in capital are robust. The increase in employment has gone hand in hand with the trend of the workforce and the unemployment rate has undergone minimal changes". "Inflation - concludes the note - remains high. Today's monetary policy decision will favor a more timely return to the 2% objective set by the Federal Open Market (FOMC). The Committee will guarantee price stability".
See also
Trump: "Fed will cut rates or stop trade with countries with deficits"
What to Watch
AI outlook — possibilities, not facts
The Federal Reserve will make a second interest rate hike by the end of 2026
Likely · Within months
Open Questions
- What are the specific economic conditions that will lead the Fed to decide on the second increase expected by the end of 2026?
- How will emerging markets react to the double increase in US rates expected in the medium term?
