Federal Reserve Hikes Interest Rates for First Time Since 2023

The Federal Reserve has ended its two-year period of easing monetary policy by raising the federal funds rate for the first time since July 2023. The rate increase is a 25-basis-point hike to a target range of 3.75%-4.00%, and Fed leadership's tone suggests that it may not be the last.

The move was forced by August 2026's core CPI coming in at 0.29% month-over-month, beating expectations. Producer prices also showed a similar story, with PPI data reinforcing the case for tighter policy. Retail sales figures added fuel to the fire, suggesting consumer demand remains robust enough to keep upward pressure on prices.

Geopolitical tensions have compounded the problem by pushing energy prices higher, and the Fed's preferred inflation metrics remain stubbornly above the 2% target. In a speech at the Jackson Hole symposium in August, Chairman Kevin Warsh telegraphed the move with his statement that 'Price stability is not self-executing.'

The outcome of the FOMC meeting was all but certain, with 86 out of 101 economists predicting the 25-basis-point hike and market-implied probabilities ranging from 85% to 93%. The path to this point began in mid-2023 when the federal funds rate sat at a cycle peak of 5.25%-5.50%, and since then, inflation data has surprised to the upside.