The Federal Reserve raised its benchmark interest rate on Wednesday for the first time in more than three years, moving its target range up a quarter of a percentage point to 3.75 percent to 4 percent.
The Federal Open Market Committee, the Fed's rate setting group, approved the increase by a vote of 12 to 0. It is the first hike since 2023, and it comes after the Fed held rates steady in that 3.5 to 3.75 percent range for the better part of three years while it tried to bring inflation down to its 2 percent target. In its statement, the committee said inflation remains elevated. Much of that pressure has come from higher fuel costs linked to the ongoing conflict involving Iran, along with the lingering effects of tariffs, rather than from the kind of broad based price growth the Fed usually looks past.
Fed Chair Kevin Warsh, who has led the central bank for a little over three months, told reporters after the meeting that the move was deliberate. He described it as a sober and responsible decision that the committee had been preparing for, and said restoring price stability is foundational to future growth. The Fed also released updated economic projections showing officials now expect the unemployment rate to end the year around 4.1 percent, a bit lower than they had forecast in June, suggesting the labor market has held up even as borrowing costs rise. The committee's updated dot plot points to the possibility of at least one more quarter point increase before the end of the year.
The decision matters well beyond Wall Street. Higher Fed rates tend to flow quickly into everyday costs: several major banks are already moving to raise the base rate that many credit cards are built on, and mortgage and auto loan rates typically follow within weeks. For a Fed that spent the last three years mostly cutting or holding rates, resuming hikes marks a shift in strategy driven largely by an energy shock rather than a red hot economy.
The next scheduled Fed meeting is October 27 and 28. Investors will be watching incoming inflation and jobs data closely, along with any change in oil prices, for signs of whether the committee follows through on the possibility of another increase.
Why did the Fed raise rates now instead of cutting them?
Officials said inflation remains elevated, driven in large part by higher fuel costs from the conflict involving Iran and lingering tariff effects, and they wanted to act before those pressures spread into broader price expectations.
Will this affect my credit card or mortgage?
It can. Several major banks are already raising the base rate tied to many credit cards, and other borrowing costs such as mortgages often adjust within weeks of a Fed move.