The Federal Reserve has raised interest rates for the first time since July 2023. On September 16, the FOMC voted 12-0 to increase the federal funds rate by 25 basis points, establishing a new target range of 3.75%-4.00%. Officials stated that the decision reflects a priority to combat inflation over concerns regarding the labor market.
Current economic data shows headline PCE inflation at 3.7% and core PCE at 3.4%, both exceeding the central bank's 2% target. Meanwhile, the unemployment rate projection was adjusted to 4.1%. Policymakers believe the labor market remains resilient enough to withstand higher borrowing costs without entering a significant economic downturn.
The committee's latest economic projections indicate that the federal funds rate could reach 4.1% by the end of 2026. Among the 18 FOMC participants, 16 expect at least one additional 25 basis point hike before the year concludes. Geopolitical tensions and supply chain disruptions were cited as primary factors driving persistent price pressures.
Market reactions include the 10-year Treasury yield rising above 5%, while mortgage rates are approaching 7%. These shifts in the bond market create increased competition for capital, as investors now find higher yields on government debt, which may impact the flow of funds into riskier asset classes.
