Fed Raises Rates for First Time Since 2023, and Most Officials Expect Another

The Federal Reserve is set to announce its latest interest rate decision Wednesday at 2 p.m. Eastern, with markets pricing in roughly 90% odds of a quarter-point rate hike, moving the target range from 3.5%-3.75% up to 3.75%-4%. Fed Chair Kevin Warsh will hold a press conference afterward alongside the release of the Fed’s updated economic projections.

Why would the Fed raise rates instead of cutting them?

Inflation pressure has been building from multiple directions at once. The 10-year Treasury yield has climbed to around 5%, its highest level in nearly two decades, and Brent crude has been trading near $109 a barrel following recent Middle East supply disruptions, both of which tend to push consumer prices higher. Fed officials have also flagged that tariff costs are still working their way through the economy, with businesses continuing to pass those costs on to consumers rather than absorbing them. A rate hike is the Fed’s standard tool for cooling that kind of inflation pressure, even though raising rates during a period of economic uncertainty carries its own risk of slowing growth further.

What would this actually mean for regular people?

A quarter-point hike would be the first rate increase since July 2023, reversing a stretch of rate cuts and pauses that borrowers had gotten used to. Anyone carrying a credit card balance, a variable-rate loan, or shopping for a new mortgage would likely see borrowing costs tick up in the following weeks. On the flip side, savers with high-yield savings accounts or CDs would generally see slightly better returns, since banks tend to raise deposit rates alongside their lending rates. The size of the move matters too: a quarter point is a relatively modest increase, and the Fed’s updated projections and Warsh’s press conference comments will likely matter more for markets than the rate change itself, since they’ll signal whether more hikes are expected before year’s end.

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How confident is the market that this is actually happening?

Very. The CME FedWatch tool has been showing roughly 86-90% odds of a quarter-point hike since the August inflation report came out on September 11, which is about as close to a market consensus as these decisions get. That doesn’t guarantee the outcome, since the Fed’s own internal debate could still shift at the last minute, but it does mean the real news value this afternoon is more likely to come from what Warsh says about the path forward than from the rate decision itself.

Sources: FedRateCalc · CNBC · TIOmarkets · Charles Schwab

Update: The Fed raised rates, and signaled another hike may be coming

Update, Sept. 16: The Fed did it. The FOMC voted unanimously to raise the benchmark rate by a quarter point to a target range of 3.75%-4%, the first increase since July 2023. Chair Kevin Warsh framed the move as a deliberate tightening rather than a one-off adjustment: “We removed a dose of accommodation so that financial and credit conditions would be consistent with our ultimate objectives,” he said, adding, “Today’s action starts to show we’re serious about this, and we will deliver on the price stability objective.” He said inflation remains too high and vowed a “timelier return” to the Fed’s 2% target.

The bigger signal came from the updated projections: 16 of the 18 committee participants expect at least one more rate increase before the end of the year, meaning this likely isn’t a single defensive move. Markets reacted badly. The Dow had its worst day in nearly a month, and the 10-year Treasury yield climbed back to its highest level since 2007. The decision also puts Warsh at odds with President Trump, who has pushed publicly for lower rates.

Update sources: CNBC · NPR · Bloomberg · CNN Business

Related from BeezLoop: The Dow Is Over 51,000 and the Fed Just Raised Rates Anyway, The Fed's September 16 Rate Decision Is a Coin Flip: Here's What a Hike Would Cost You and Fed Chair Warsh Warns Inflation May Still Require a Rate Hike.