Fed Raises Rates by 25 Basis Points as Inflation Remains Elevated

The Federal Reserve raised its benchmark interest rate for the first time since July 2023 on September 16, 2026. The 25-basis-point increase brought the federal funds target range to 3.75%, 4.00%, with a unanimous vote from the Federal Open Market Committee.

With inflation sitting at a projected median PCE of 3.7% for 2026, well above the Fed's 2% target, policymakers felt it necessary to tighten monetary policy. Rising energy prices, partly due to geopolitical instability tied to the Iran conflict, have kept price pressures elevated despite solid growth.

Corporate treasurers are now back in action as they renegotiate pass-through rates with banks. Expectations for pass-through are running at 60-90%, which would be significant for companies holding substantial short-term cash positions. Major banks, including JPMorgan and BNY Mellon, have already raised their prime lending rates to 7% in response.

The Fed also flagged the likelihood of at least one more hike before year-end, with a median projection for the federal funds rate holding at 4.1% into 2027. This development has set off interest rate expectations and influenced short-term investment returns, with two-year Treasury yields climbing to 4.7%.