The Federal Reserve raised its benchmark interest rate by a quarter percentage point on September 16, 2026 — its first rate hike since 2023. The Federal Open Market Committee voted unanimously, 12-0, to move the target range to 3.75%-4%.
- What changed: Benchmark rate up 0.25 points, to a target range of 3.75%-4%
- Why: Inflation running above target, rising oil prices tied to the war with Iran, and a strong labor market
- Who decided: The FOMC, led by new Fed Chair Kevin Warsh, in a 12-0 vote
- What’s next: Most Fed officials expect at least one more hike before the end of 2026
- Market reaction: Stocks fell and the 10-year Treasury yield hit its highest level since 2007
Why the Fed raised rates
Fed Chairman Kevin Warsh, who took over the role earlier this year after being nominated by President Trump, described the move as “removing a dose of accommodation” rather than tightening policy outright. He pointed to two factors: inflation that has stayed above the Fed’s 2% target, and a labor market that has held up better than expected.
Energy prices have been the biggest driver of that inflation. The war with Iran has pushed oil prices higher since earlier this year, and Warsh acknowledged the Fed has no direct way to control that. What the central bank can do, he said, is keep the price pressure from spreading further into the rest of the economy.
A rate hike the president didn’t want
The decision puts Warsh at odds with the president who picked him for the job. Trump has repeatedly called for lower interest rates, and the White House’s top economic adviser, Christopher Phelan, called a rate hike a mistake. Warsh has kept the Fed’s reasoning separate from politics so far, declining to discuss any direct conversations with the president.
Warsh took over as Fed chair after Jerome Powell’s term ended earlier this year. Powell remains on the Fed’s board as a governor.
What it means for your money
Borrowing gets more expensive. Mortgage rates, already elevated compared with a year ago, aren’t likely to ease soon, though housing economists note inventory is at a six-year high in many markets, giving buyers room to negotiate even with rates staying elevated. Credit card and auto loan rates typically move in the same direction as the Fed’s benchmark rate.
Savers benefit, at least somewhat. Rates on savings accounts and CDs tend to rise along with the Fed’s rate, though banks are often slow to pass the full increase on to customers.
What comes next
The Fed’s own projections show most officials expect at least one more rate hike before the end of 2026, and some see room for two. Two officials think the Fed should hold here. The central bank doesn’t expect inflation to reach its 2% target until 2029, though it forecasts a sharper drop starting in 2027.
Warsh didn’t submit his own rate forecast to the committee’s projections, so his personal view on how many hikes are still coming isn’t part of the public record — something investors are watching closely.
Frequently Asked Questions
Why did the Fed raise interest rates in September 2026?
The Fed cited inflation that has stayed above its 2% target, rising oil prices linked to the war with Iran, and a stronger-than-expected labor market.
What is the new federal funds rate?
The Fed’s benchmark rate now sits in a target range of 3.75%-4%, up a quarter point from before the September 2026 meeting.
Will the Fed raise interest rates again in 2026?
Most Fed officials expect at least one more hike before the end of 2026, based on the projections released after the September meeting.
How does a Fed rate hike affect mortgage rates?
Fed rate hikes generally push borrowing costs higher, including mortgage rates, though mortgage rates are also shaped by other factors like Treasury yields and housing demand.