Fed approves interest rate hike, signals one more to come this year

The Federal Reserve raised its benchmark federal funds rate by 25 basis points to a 3.75%-4.00% target range, the first increase since 2023, and signaled another hike later this year. Policymakers framed the move as necessary to rein in elevated inflation driven by higher energy costs, tariffs and supply factors, and flagged concern that persistent oil-price pressures and rising investment in artificial intelligence could keep inflation expectations elevated. The FOMC voted unanimously 12-0, reversing an earlier period of dissent, and Chair Kevin Warsh will provide further explanation at a scheduled news conference.

Updated projections from the committee show 16 of 18 participants expect at least one more rate increase this year and four see two additional hikes; only two officials expect the committee to stop after this move. Officials nudged up their inflation forecasts - headline PCE to 3.7% and core PCE to 3.4% - and pushed out the return to a 2% goal until 2029, with a sharper decline projected in 2027. The Fed also trimmed its unemployment outlook to 4.1%. Markets reacted with stocks rising and Treasury yields fluctuating (the 10‑year up sharply since late August and the 30‑year mortgage rate climbing above 7%), while investors look to Warsh for guidance on the path forward.