The Federal Reserve raised its benchmark rate by 25 basis points on September 16, its first hike since July 2023, pushing the target range to 3.75%-4.00%. The FOMC voted unanimously, judging that sticky inflation poses a bigger threat than a cooling labor market.
The Federal Reserve raised rates for the first time in over three years. The FOMC voted unanimously on September 16 to lift the federal funds rate by 25 basis points, pushing the target range to 3.75%-4.00%. The move signals the central bank now views sticky inflation as a bigger threat than any cooling in the job market.
Richmond Fed President Thomas Barkin said the Fed raised rates because inflation risks outweigh employment risks, signaling the central bank now views price pressure as the bigger threat.
Inflation still runs well above target
Headline PCE inflation sits at 3.7%, with core PCE at 3.4%, both well above the Fed's 2% target. On employment, the unemployment rate projection was revised lower to 4.1%, suggesting a labor market that is still holding up. That durability gave policymakers the confidence to tighten, reasoning that workers can absorb higher rates without triggering a painful downturn.
The Fed's Summary of Economic Projections also shows growth forecasts were upgraded alongside the rate decision. The median dot plot suggests the federal funds rate could reach 4.1% by the end of 2026. Separately, 16 of the 18 FOMC participants expect at least one more 25 basis point increase before 2026 wraps up, and the committee voted 12-0 on the move.
Geopolitical tensions and supply chain disruptions remain the main drivers of the price pressure. These external supply shocks have kept upward pressure on prices even as demand-side tools, such as rate policy, have been deployed aggressively in past cycles to manage domestic demand.
Bond yields and mortgages already moving
Markets reacted fast. The 10-year Treasury yield has climbed above 5%, a level that carries real consequences for corporate and government borrowing costs. Separately, mortgage rates are nearing 7%, squeezing an already strained housing market.
For investors, a 5% yield on relatively safe government bonds creates real competition for capital that might otherwise flow into riskier assets.
Source: Crypto Briefing
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