US Federal Reserve raises interest rate by 25 basis points

- To a range of 3.75%–4.00%, the first increase since July 2023

- Majority of policymakers expect an additional hike before the end of the year

The U.S. Federal Reserve raised interest rates by 25 basis points on Wednesday, bringing the target range for the federal funds rate to 3.75%–4.00%, marking the first rate increase since July 2023.

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The decision by the Federal Open Market Committee was unanimous, representing the first change in monetary policy since Kevin Warsh assumed the chairmanship of the Federal Reserve in May.

The Federal Reserve stated that the rate hike would support the return of inflation to the committee’s 2% target at a more appropriate time, amid ongoing inflationary pressures.

The monetary policy statement reflected a shift in the characterization of inflation, removing the previous reference attributing its rise to “supply shocks,” particularly in the energy sector, amid concerns about a broadening of price pressures.

In their latest economic projections, 16 out of 18 policymakers indicated that at least one additional 25-basis-point rate hike is likely before the end of the current year, while two policymakers projected that rates would remain at the new level.

Projections indicated that the federal funds rate range would reach 4.00%–4.25% by the end of 2026 and remain at the same level by the end of 2027.

Federal Reserve officials raised their inflation forecast, as measured by the personal consumption expenditures price index, to 3.7% by the end of the current year, compared with 3.6% in the June projections. Their estimates suggest that inflation will not return to the 2% target level before 2029.

The Federal Reserve also raised its forecast for U.S. economic growth this year to 2.3%, compared with 2.2% in the June projections, while lowering its year-end unemployment rate forecast to 4.1%, down from 4.3% in the June projections.

The Federal Reserve provided no forward guidance regarding future interest rate decisions, leaving the path of monetary policy contingent on evolving economic data, as markets await statements from Fed Chair Kevin Warsh on the rationale for the rate hike and the likelihood of additional measures in the coming months.