Fed Raises Policy Rate to 3.75%–4.00% in First Hike Under Chair Kevin Warsh

The Federal Reserve on Sept. 16 raised its benchmark interest-rate target by a quarter percentage point to 3.75% to 4.00%, marking the central bank’s first rate increase since July 2023 and the first hike under Chair Kevin Warsh.

The move matters because the federal funds rate — the Fed’s benchmark overnight rate — influences borrowing costs across the financial system even though consumers and businesses do not borrow at that exact rate. A higher policy rate tends to keep business loans, bank lending rates and some household borrowing costs elevated as the Fed tries to push inflation back to its 2% goal.

The Federal Open Market Committee approved the increase unanimously, 12-0. In its statement, the Fed said, “Inflation remains elevated” and said the move would support a “timelier return” to its 2% inflation goal. The same statement said economic activity is expanding at a solid pace and that domestic spending has been resilient.

Warsh, who was confirmed and sworn in as Fed chair in May 2026, led the meeting and the post-meeting press conference. Wednesday’s decision was the first rate increase of his tenure. At the press conference, Warsh underscored the central bank’s focus, saying, “The plain fact is that inflation is too high and has been for too long.”

Fresh economic projections released alongside the decision suggested policymakers expect rates to stay relatively high through the rest of the year. The median estimate in the Fed’s Summary of Economic Projections showed the federal funds rate at 4.1% at the end of 2026. The same projections showed 2026 real GDP growth of 2.3%, unemployment of about 4.1%, PCE inflation of 3.7% and core PCE inflation of 3.4%.

The Fed’s implementation note set the interest rate paid on reserve balances, or IORB, at 3.90% and the primary credit rate at 4.00%, both effective Sept. 17. Those settings help transmit the policy decision through short-term funding markets.

The increase also marks a turn in the recent path of Fed policy. The last time the central bank raised rates was July 26, 2023, when it lifted the target range to 5.25% to 5.50%. After that, the Fed eased policy, with its most recent cut coming Dec. 10, 2025, when it lowered the range to 3.50% to 3.75%, and then held rates steady through multiple 2026 meetings before raising again this month.

For households and businesses, the broader effect is that borrowing costs were already high and are likely to remain so. Freddie Mac said the average 30-year fixed mortgage rate was 6.95% in the week ending Sept. 17, up from 6.76% a week earlier. Mortgage rates do not move one-for-one with the Fed’s benchmark, but the increase offered a fresh reminder that financing costs across the economy remain elevated as the central bank renews its inflation fight.