Federal Reserve hikes interest rates for first time since 2023 amid stubborn inflation

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| Updated September 16, 2026 4:01pm EDT Federal Reserve hikes interest rates for first time since 2023 amid stubborn inflation Central bank meeting is the third led by Fed Chair Kevin Warsh Facebook Twitter Threads Print Email Add Fox Business on Google By Eric Revell FOXBusiness close video Federal Reserve hikes interest rates by 25 basis points as inflation remains elevated FOX Business' Edward Lawrence reports to Charles Payne on the Federal Reserve raising interest rates by 25 basis points. Projections show PCE inflation at 3.7% in 2026 and falling to 2.3% in 2027 as domestic spending remains resilient.

The Federal Reserve on Wednesday raised its benchmark interest rate for the first time in over three years amid concerns over stubborn inflation that has been driven recently by higher energy prices.

In-Depth Developments & Factual Context

Fed policymakers voted 12-0 to raise the federal funds rate from a range of 3.5% to 3.75% to a new target rate of 3.75% to 4%. The 25-basis-point increase marks the first interest rate hike since July 2023 and comes after the Fed left rates unchanged at its first five meetings this year.

The Federal Open Market Committee (FOMC), the central bank's panel responsible for monetary policy moves, noted that "Economic activity is expanding at a solid pace. While uncertainty remains elevated owing, in part, to geopolitical developments, domestic spending has been resilient. Productivity growth is strong, and capital investment is robust.

"Job gains have kept pace with the workforce, and the unemployment rate has changed little. Inflation remains elevated. Today's policy action will support a timelier return to the Committee's 2% goal."

Federal Reserve Chair Kevin Warsh will discuss the interest rate hike at a news conference. (Eric Lee/Reuters)

Industry Impact & Strategic Analysis

STUBBORN INFLATION SETS STAGE FOR FEDERAL RESERVE TO HIKE INTEREST RATES

The FOMC's rate hike announcement was accompanied by a summary of economic projections made by policymakers. The median member of the panel projected one more 25-basis-point rate hike this year on the so-called "dot plot" as the FOMC is set to meet again in October and December, when further moves could occur. The median projection also expects the federal funds rate to remain around that level next year.

Fed Chair Kevin Warsh said the FOMC raised interest rates in support of its dual mandate to ensure price stability and promote full employment in the economy, saying that the panel "will deliver price stability."

"Our decision comes at a time when the American economy appears to be strengthening," Warsh said, noting labor market data, private sector earnings and capital investment as indicators of that strength. "I would be hard-pressed to describe broad financial conditions as restrictive."

Forward Outlook & Market Perspective

The Fed chair noted that the unemployment rate remains low at around 4.1%, with job openings and weekly hours rising, so the "labor side of the Fed's congressional remit is in good shape."

"Yet for more than five years, inflation has been running above target. So our predominant focus is on the price stability side of our mandate. The plain fact is that inflation is too high and has been for too long. This summer's inflation readings do not tell me that underlying trends have meaningfully improved," he said.

WHAT WARSH'S JACKSON HOLE SPEECH SIGNALS ABOUT WHERE INTEREST RATES ARE HEADED

Warsh noted that the likely change in the personal consumption expenditures (PCE) index - the Fed's preferred inflation gauge - was likely around 3.6% in August, well above the 2% target, while core PCE and core consumer price index (CPI) data are running at about 3.2% and 2.4%, respectively.

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