US Fed hikes rates for first time since 2023 as inflation stays sticky

The US Federal Reserve on Wednesday raised its interest rate by 25 basis points to 3.75-4%, its first hike since July 2023, to combat persistent inflation.

The Federal Open Market Committee (FOMC) voted unanimously, 12-0, at a meeting held on September 15-16.

"Inflation remains elevated.

Today's policy action will support a timelier return to the Committee's 2 percent goal.

The Committee will deliver price stability," it reiterated.

The Fed projected median US GDP growth of 2.3% in 2026, up from the 2.2% June projection, and 2.4% from 2.3% in 2027.

Unemployment is now forecast at 4.1% for both years, down from June's 4.3%.

Inflation, as measured by the personal consumption expenditures price index, was projected to reach 3.7% in 2026, up from the June forecast of 3.6%, and remained unchanged at 2.3% for 2027.

"The plain fact is that inflation is too high and has been for too long," Fed Chair Kevin Warsh said at a press conference.

He has said the risk is that people's inflation expectations become "unanchored" – that people lose faith inflation will return to normal.

"The Committee's unanimous vote shows our resolve to achieve price stability on a timelier basis," Warsh said.

Warsh put a positive spin, saying a robust and resilient economy can handle a quarter-point hike.

But he didn't signal whether an aggressive rate-hiking cycle was on the way.

"I'm not in the forward guidance business," he said.