Federal Reserve Hikes Rates for First Time Since 2023 Amid Persistent Inflation

The Federal Reserve raised interest rates for the first time since July 2023, increasing the federal funds rate by 25 basis points to a new target range of 3.75%-4%. This decision was unanimous and marks a shift from the fractured July meeting where three FOMC members dissented.

According to Jane Foley, Head of FX Strategy at Rabobank, Fed Chair Kevin Warsh 'had to win his credibility' with this move. Warsh took over as Federal Reserve chair in 2026, inheriting a challenging situation with stubborn inflation above the Fed's 2% target.

The July FOMC meeting was supposed to be an opportunity for Warsh to act on inflation, but he held rates steady instead. The September decision was seen as a follow-through on the groundwork laid by Warsh at the Jackson Hole symposium in August, where he signaled a willingness to raise rates further if inflation data didn't cooperate.

Rabobank's analysts project one additional rate hike before the end of 2026, followed by an anticipated pause in tightening through 2027. However, the persistent inflation driving these decisions is being driven significantly by supply-side factors, including geopolitical tensions and tariffs raising import costs.