- The US Federal Reserve raised interest rates by 25 basis points to 3.75–4%
- Economic activity is expanding steadily with resilient domestic spending
- Inflation remains high, with core PCE inflation projected at 3.4% in 2026
The US Federal Reserve delivered its first interest rate hike in over three years, as the Kevin Warsh-led Federal Open Market Committee took its first major step to tame persistent inflation. Benchmark lending rates were raised by 25 basis points to 3.75–4%, matching market expectations.
In its policy statement, the central bank noted that economic activity continues to expand at a solid pace, underpinned by domestic spending that has remained resilient despite ongoing macro uncertainty.
Job gains have largely kept pace with the workforce, the Fed observed, projecting the median unemployment rate to hold steady at 4.1% across both 2026 and 2027.
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However, policymakers warned that inflation remains elevated, prompting the FOMC to reiterate its firm commitment to delivering price stability.
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Fresh quarterly projections indicate further tightening is on the table, with 16 officials projecting at least one more rate hike in 2026. The median projection places the policy rate at 4.1% in 2026 and holding at 4.1% in 2027, while the median longer-run neutral funds rate remains unchanged at 2%.
The Fed expects a prolonged fight to cool prices, projecting core PCE inflation at 3.4% in 2026 before moderating to 2.5% in 2027. The median estimate does not see inflation returning to the central bank's 2% target until 2029.
Underlying economic output is projected to provide a steady cushion for higher borrowing costs, with median real GDP growth forecasted at 2.3% in 2026 and 2.4% in 2027.
Notably, 16 Fed officials projected at least one more rate hike in 2026, whereas four officials pencilled in a cumulative hike of 75 bps in this calendar year. If one goes by the latter projection, then there could be two more quarter-point rate hikes each, in the FOMC meetings scheduled in October and December.
Wall Street gave a thumbs up to the Fed decision, with S&P 500 edging even higher than the levels seen before 2:00 pm EST (11:30 pm IST). The benchmark index was up 0.42% at 7617.96, whereas the tech-heavy Nasdaq Composite was up 0.61% at 26,138.96. However, the Dow Jones Industrial Average hovered around the flat line.
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