Fed Hikes Rates for First Time Since July 2023 Amid Market Expectations

The Federal Reserve increased the target range for the federal funds rate by 25 basis points at its September meeting, marking the first increase since July 2023. This decision was not a surprise to markets, which had been anticipating the hike heading into the meeting.

Despite the small increase, the move is seen as significant because it shows that the Fed is committed to supporting a 'timelier' return to its 2% inflation goal. The median projection from FOMC participants suggests one additional 25-basis-point hike by year-end, followed by no further increase in 2027.

However, markets are pricing a more aggressive path, with Fed funds futures implying roughly three additional 25-basis-point hikes over the next year. This gap between market pricing and policymakers' projections will be important to watch as incoming inflation data shape expectations for the path of rates.