The Fed Raises Rates to Combat Inflation

Summary

• The Federal Reserve raised the federal funds rate by 0.25% at its September 2026 meeting to a target range of 3.75%-4.00%, marking the first increase since July 2023.
• The rate hike decision was unanimous among the Committee members.
• Core personal consumption expenditures (PCE) inflation reached 3.3% in July 2026, driven by higher energy prices resulting from conflict with Iran.
• Brent crude oil prices rose to $108 per barrel due to renewed engagement with Iran, adding pressure to inflation.
• Fed funds futures reflected an over 90% probability of a rate hike as the meeting concluded, up from a 24% probability in early June.
• The Federal Reserve statement removed the caveat that inflation was "in part" a supply-shock story and tied the rate hike to a "timelier return" to 2% inflation.
• The Summary of Economic Projections (SEP) projected 2026 real gross domestic product growth at 2.3% and an unemployment rate of 4.1%.
• SEP projections indicated 2026 PCE inflation at 3.7% with core inflation at 3.4%, expected to ease to 2.3% and 2.5% respectively in 2027.
• The "dot plot" suggests officials expect one additional 25-basis point rate hike in 2026, with eight of 18 participants believing another hike in 2027 is appropriate.
• The 10-year Treasury yield reached 5.00%, its highest level since 2007, while the 30-year yield peaked at 5.37%, a 19-year high.
• Chair Kevin Warsh provided no forward guidance during the press conference, emphasizing that economic strength, inflation trends, and geopolitics have changed since July.
• The Committee broadened its reference to uncertainty from "the conflict in the Middle East" to "geopolitical developments."
• Officials no longer see GDP growth risks tilted to the downside, with the balance moving toward "broadly balanced" and "weighted to upside."