The U.S. Federal Reserve (Fed) raised its policy rate by 25 basis points in its decision dated September 16, 2026. The increase corresponded to a 0.25 percentage-point rise in the interest rate and marked the Fed's first rate hike since summer 2023.
The decision stood out as the first rate change of the Kevin Warsh era. Inflation remaining above the Fed's 2% target and the assessment that continued price pressures could require further tightening were cited as the main reasons for the rate hike.
A new turning point in the Fed's interest-rate policy
As part of its fight against high inflation, the Fed made a total of 10 rate hikes between March 2022 and June 2023. The increases during this period ranged from 25 to 75 basis points. The first step was taken on March 16, 2022, when the target range for the federal funds rate was raised to 0.25%-0.50%.
The Fed delivered a 50-basis-point increase in May 2022, followed by four consecutive 75-basis-point hikes at meetings held between June and November 2022. Between February and May 2023, it implemented 25-basis-point increases at three meetings. With its final hike on July 26, 2023, the Fed raised the policy rate to a range of 5.25%-5.50%.
Impact of the rate hike on borrowing and markets
The Fed later cut interest rates and kept them unchanged. For this reason, the September 16, 2026 decision is seen as a new tightening move after a long interval. Whether the increase will remain a one-off will depend on the Fed's guidance regarding its upcoming meetings.
The rate hike is expected to drive up borrowing costs for credit cards, variable-rate loans, commercial loans and housing finance. Savers, meanwhile, may benefit from higher deposit returns. Higher interest rates aim to reduce inflation by slowing consumption and investment, but they can also put pressure on economic growth and employment.
The decision is also significant for the value of the U.S. dollar, Treasury yields, global risk appetite and emerging-market economies. The balance the Fed strikes between fighting inflation and the pressure that interest rates place on economic growth and employment will shape the framework for its subsequent policy steps.
