Posted on 09/16/2026 11:11:46 AM PDT by Miami Rebel
The Federal Reserve on Wednesday approved its first interest rate hike in more than three years and indicated another to come, as part of an effort aimed at combating inflation brought on by spiraling oil prices and other factors.
In a move that markets widely anticipated, the central bank’s Federal Open Market Committee voted 12-0 to increase its key interest rate by a quarter percentage point, or 25 basis points. The move brought the overnight funds rate to a target range of 3.75%-4%.
“Inflation remains elevated,” the committee said in its brief post-meeting statement. “Today’s policy action will support a timelier return to the Committee’s 2 percent goal. The Committee will deliver price stability.” Despite a raft of conflicting recent statements from policymakers, markets had priced in a better than 90% chance that the FOMC would approve the increase, though there was chatter about the possibility of multiple dissents.
Persistently high inflation readings coupled with statements from Chairman Kevin Warsh a few weeks ago had convinced Wall Street that the Fed would OK its first rate increase since July 2023. Updated projections the committee released Wednesday showed that a strong majority of officials think another hike is possible later this year.
The dot plot grid of individual officials’ expectations indicated that 16 of the 18 participants – Chairman Kevin Warsh has chosen not to submit a dot since taking the position – expected another hike, with four of those seeing two more as possible. Two participants expected the committee to stop at one hike.
However, there are no increases penciled in for subsequent years, with one cut each indicated for 2028 and at least one for 2029. Officials also nudged up their expectations for inflation this year. They see the headline personal consumption expenditures price index at 3.7% and core excluding food and energy at 3.4%, both 0.1 percentage point higher than the last update in June. The Fed doesn’t expect to reach its inflation target until 2029, though it sees both measures dropping off sharply in 2027 – 2.3% for headline and 2.5% for core.
The committee had been on hold all year and was expected to stay there, until the tide began turning towards a hike in late August. The Fed rarely only moves once, as policymakers generally eschew incremental moves when they think inflation is too high and needs elevated rates, or when growth is too slow and the Fed tries to boost demand with lower rates.
While the move was expected, the rationale behind the hike was unusual. The Fed generally looks through the kind of inflation the economy is experiencing now, with the higher fuel costs from the Iran war and the lingering impacts from tariffs. However, officials in recent days have weighed the cost of continuing to look through the price increases, particularly in light of a stabilizing labor market. The committee lowered its outlook for the unemployment rate to 4.1%, down 0.2 percentage point from June.
The worry now is that the duration of the energy prices could raise inflation expectations and start to spread through the economy. Economists also see expanded investment in artificial intelligence as a potential inflationary factor. Also, the “transitory” episode from a few years ago is still fresh in policymakers’ minds, as Fed officials thought the supply-and-demand shock from the Covid pandemic eventually would fade. Instead, inflation readings hit 40-year highs before the Fed decided to act.
In July, the debate generated considerable dissent on the policy view, with three FOMC members voting against the decision to hold, preferring instead a quarter-point hike. At this week’s meeting, 2027 was a fairly close call, with eight officials pointing to another hike, six seeing the funds rate holding steady and four envisioning cuts. Markets already have been pricing in higher rates across the spectrum. Treasury yields have been surging. The 10-year note has risen about a quarter percentage point since Warsh’s remarks at the Fed’s Jackson Hole, Wyo., symposium on Aug. 28. The benchmark is up about a full percentage point since its February low. The 2-year note, which is most sensitive to rate expectations, has seen even sharper gains.
Borrowing costs are on the move as well. A 30-year fixed rate mortgage has soared to 7.19%, up some 38 basis points since the Jackson Hole speech and more than a full percentage point from a year ago, according to Mortgage News Daily.
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Yep, two more to come at a minimum. They should have raised by .50, not .25.
Meet the new boss, same as the old boss.
Perhaps your boss was right all along.
The inflation that Biden ignited has been hard to control
True, but not helped by tariffs, the Iran War, resulting higher oil prices, increased spending (especially defense), and a $1.8 trillion budget deficit.
Time to strip the Fed of the ability to control interest rates. And the Fed gets thing wrong most of the time.
The Fed hasn’t achieved its goal of 2% inflation for 67 consecutive months now, and they now predict they won’t achieve it until 2029! It shows how pathetic the Fed has been with inflation.
Let’s see if I understand this. Prices are rising. To make them fall, the government raises interest rates that banks pay for deposits, and normal people and businesses pay for loans.
When the interest rate of business loans goes up, businesses borrow less, and don’t expand as much. This causes the price of bread, milk and butter to go down. Prices in general go down, and the figures announced every month proclaim that the rate of inflation is going down.
Excuse me if I don’t see a causality here. “Making money more expensive makes commodities cheaper.” How does that happen?
Inflation is caused by government issuing more money. Inflation is cured by government not issuing more money.
True, but CPI was running 2.9% in January 2025.
And President Trump ran with the explicit promise that he would send prices down from day one. Not that he would SLOW inflation, but that he’d reverse it.
Yet think back to whose watch the supply restraining lock downs and the no strings attached profligate government spending started. Biden double downed but Trump looked the other way when the the inflation fuse was lit in 2020.
Most businesses run on short-term credit. If borrowing becomes more costly, they will be more reluctant to hire, to build inventories, or to expand.
Raising the fed funds rates cools consumer and business demand by making borrowing more expensive.
One, maybe two rate hikes mean no new home sales.
I am no expert, but it would seem raising interest rates will be ineffective in dealing with rising energy prices if that is the main cause of prices rising. There does not seem to be a connection between the two.
Trump ignited it first term:
The 4+ trillion dollar deficit in 2020 that was monetized in large part by the Federal Reserve spiked inflation.
Trump is within of whisker of surpassing Biden's largest deficit (and #2 all time behind Trump's 2020 deficit)
“Time to strip the Fed of the ability to control interest rates. And the Fed gets thing wrong most of the time.”
The Fed hasn’t got the ability to control any interest rate other than the overnight federal funds rate. That’s the rate that the Fed pays to commercial banks for their reserve balances.
So there’s hardly anything to remove. But the Fed does make a great whipping boy to blame.
Increasing interest rates reduces available cash because less people can take out loans. As a result they would reduce demand on products. Reducing the demand on products would then in theory help lower the price of those products to help them sell.
In our monetary system new money is typically created by the banks. They are legally allowed to loan a multiple of their 'assets' held in reserve. The reserve 'asset' is federal debt. So expansion of the federal debt increases the pool of 'assets' (really just a promise to soak future taxpayers, not an actual result of production held in reserve from consumption) that banks can extend credit upon.
To curb how fast banks generate new credit on top of the pool of new federal debt the Federal Reserve manipulates interest rates. If the Federal Reserve raised interest rates to the point no new loans were originated on federal debt held by banks, the federal debt wouldn't actually be inflationary - unless the Federal Reserve printed money to buy that debt - thus increasing the monetary pool via the printing press, instead of via new loans.
Effort aimed at combating inflation.
Interest rate hike
Huh Moe
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