Fed Raises Rates 25bp to 3.75%-4%, First Hike Since 2023; Dot Plot Points to One More Increase in 2026

The Federal Reserve raised its benchmark interest rate by a quarter percentage point on September 16, lifting the federal funds target range to 3.75%-4% in what CNBC and Trading Economics both described as the Fed's first hike since 2023. CNBC reported that the Federal Open Market Committee voted 12-0 to approve the increase, and Trading Economics likewise described the decision as unanimous. The accompanying Summary of Economic Projections (SEP) showed a median federal funds rate of 4.1% by the end of 2026, implying one additional 25 basis point move before year-end, according to the Federal Reserve's own projections materials.

Unanimous Vote, Hawkish Statement

The Committee's post-meeting statement said inflation "remains elevated" and that the rate increase "will support a timelier return to the Committee's 2 percent goal," per the FOMC statement text reported by CNBC. Chair Kevin Warsh told reporters that inflation had been "too high ... for too long" and that the Committee had judged its standard for confidence in disinflation had not been satisfied. Warsh cited three factors behind the unanimous decision: a strong economy and labor market, inflation still running above target, and tension in the Middle East, saying "all three of those things lend themselves to a firm unanimous decision today," according to CNBC's report of his remarks.

Dot Plot Signals One More Hike in 2026

The closely watched dot plot showed 16 of 18 participants expecting at least one more rate increase this year, with four of those penciling in two additional 25 basis point moves; two participants saw no further hikes in 2026, CNBC and Trading Economics both reported. Warsh did not submit a projection, a detail confirmed in his press conference and reported by CNBC.

Looking further out, the SEP showed no additional increases penciled in beyond 2026, with one cut indicated for 2028 and at least one more for 2029, per CNBC's reading of the projections. The 2027 median was effectively unchanged from 2026, but CNBC characterized that year's dot as "a fairly close call," with eight officials pointing to another hike, six seeing rates holding steady, and four envisioning cuts. The Fed's own materials caution that these federal funds rate projections are not forecasts but individual assessments of appropriate policy on an end-of-year basis, and that historical confidence intervals around them are quite wide.

Inflation, Growth and Unemployment Projections Revised

The SEP nudged this year's inflation outlook higher. Headline PCE inflation for 2026 was revised to 3.7% and core PCE to 3.4%, each 0.1 percentage point above the June projections, according to CNBC and Trading Economics. The 2027 medians were left unchanged at 2.3% for headline and 2.5% for core. Seeking Alpha reported that core PCE inflation is projected to decline gradually and is not expected to reach the Fed's 2% objective until 2029.

Elsewhere in the SEP, the Committee lowered its unemployment rate projection to 4.1% for both 2026 and 2027, down 0.2 percentage point from the June forecast of 4.3% for both years, per CNBC and Trading Economics. GDP growth projections were revised modestly higher, to 2.3% for 2026 (from 2.2% in June) and 2.4% for 2027 (from 2.3%), Trading Economics reported.

Market Reaction: Yields, Mortgages and Futures Pricing

CNBC reported that Treasury yields fell and the S&P 500 rose in the immediate aftermath of the announcement, a reaction the outlet read as investors welcoming the Fed's inflation-fighting signal. Heading into the meeting, CNBC noted the 10-year Treasury yield had risen about a quarter percentage point since Warsh's August 28 remarks at the Jackson Hole symposium and roughly a full percentage point from its February low, with the 2-year note, which is more sensitive to near-term rate expectations, showing even sharper gains.

The rise in yields had already filtered into mortgage markets: CNBC cited Mortgage News Daily data showing the 30-year fixed mortgage rate had climbed to 7.19%, up about 38 basis points since the Jackson Hole speech and more than a full percentage point from a year earlier.

Ahead of the decision, markets had priced in a better than 90% probability that the FOMC would approve the increase, CNBC reported, though there had been chatter about the possibility of multiple dissents. After the decision, an experimental AI-generated summary on Polymarket put the market-implied probability of at least one rate hike occurring in 2026 at 100%, citing the SEP's 4.1% median projection.

Context: A More Hawkish Committee

Wednesday's unanimous vote followed a more contentious July meeting, at which three FOMC members dissented from the decision to hold rates steady, preferring a quarter-point increase at that time, according to CNBC. Brad Conger, chief investment officer at Hirtle & Co., told CNBC the September decision could mark "the moment when the FOMC regained a measure of spine," adding that "there were many arguments for standing still. But for once, the committee sided with main street."

Bottom Line

The Fed delivered a widely expected quarter-point hike while signaling, through its dot plot, that officials see one more increase before 2026 is over. The unanimous vote and upward revisions to near-term inflation projections underscore that policymakers view price pressures as still too persistent to declare victory, even as they simultaneously trimmed their unemployment forecasts and nudged growth estimates higher. With Warsh declining to submit his own dot and the 2027 outlook described by CNBC as a close call among hikes, holds and cuts, the path beyond this year remains unsettled and will likely hinge on incoming inflation and labor market data.