US Fed hikes rates for first time since 2023 as inflation stays sticky

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Federal Reserve Board Chairman Kevin Warsh speaks during a news conference at the Federal Reserve in Washington, September 16, 2026. /VCG

The US Federal Reserve on Wednesday raised its interest rate by 25 basis points to 3.75-4%, its first hike since July 2023, to combat persistent inflation. 

The Federal Open Market Committee (FOMC) voted unanimously, 12-0, at a meeting held on September 15-16. 

"Inflation remains elevated. Today's policy action will support a timelier return to the Committee's 2 percent goal. The Committee will deliver price stability," it reiterated.

The Fed projected median US GDP growth of 2.3% in 2026, up from the 2.2% June projection, and 2.4% from 2.3% in 2027. Unemployment is now forecast at 4.1% for both years, down from June's 4.3%.

Inflation, as measured by the personal consumption expenditures price index, was projected to reach 3.7% in 2026, up from the June forecast of 3.6%, and remained unchanged at 2.3% for 2027.

"The plain fact is that inflation is too high and has been for too long," Fed Chair Kevin Warsh said at a press conference. He has said the risk is that people's inflation expectations become "unanchored" – that people lose faith inflation will return to normal.

"The Committee's unanimous vote shows our resolve to achieve price stability on a timelier basis," Warsh said.

Warsh put a positive spin, saying a robust and resilient economy can handle a quarter-point hike. But he didn't signal whether an aggressive rate-hiking cycle was on the way. "I'm not in the forward guidance business," he said.

Asked about AI's economic impact, Warsh said the Fed has set up a task force to study the issue.

On Trump's calls for rate cuts, he said Fed independence is a "two-way street" and that officials "stay in our lane."

In early September, Trump threatened to stop trade with countries running trade surpluses with the US if the Fed failed to cut rates – the remark that triggered the Fed independence issue.

After the decision, major US stock indexes turned lower. The 10-year Treasury bond yield rose 2 basis points to 5.012%, while the 30-year yield fell 0.5 basis points to 5.357%. The US dollar index gained 0.6% to 100.3.

Analysts read the unanimous 12-0 vote as hawkish, suggesting at least one more rate hike before year end.

The FOMC's updated projections showed most officials expected the policy rate to reach 4-4.25% by the end of 2026, as supply shocks and geopolitical pressures drive inflation.

Goldman Sachs, JPMorgan Chase and Morgan Stanley also turned more hawkish, anticipating further monetary tightening.

The rate hike reinforces the Fed's credibility, Shawn DuBravac, chief economist at the Global Electronics Association, told CNBC. "It is a shift in policy direction."

"I would expect Chair Warsh to keep further hikes on the table while avoiding a commitment to a prolonged tightening cycle," he said.

Some economists, though, have questioned whether the hike was necessary, arguing that recent core price rises stem largely from temporary or supply-side shocks rather than an overheated, demand-driven domestic economy.

The Fed has two more meetings before the end of 2026, leaving room for further rate hikes if inflation remains elevated.