Fed meeting updates: Warsh raises rates to 3.75%-4%, signals more hikes, market reaction, what it means for your money

The US Federal Reserve raised its benchmark interest rate by 0.25 percentage point on Wednesday, September 16. The move was widely expected by Wall Street. After the increase, the Fed’s target range for the federal funds rate moved to 3.75% to 4%. This is the first time the central bank has raised rates in three years.

US Fed rate hike lifts interest rates to 3.75%-4% as Wall Street eyes another increase. (REUTERS/Eric Lee/File Photo) (REUTERS)The Fed’s latest decision comes as it continues to deal with stubborn inflation. A recent rise in oil prices has added to concerns about inflation staying high. The central bank also signalled that another rate increase could come before the end of 2026. This means borrowing costs could rise again later this year.

Historically, the Fed has often raised interest rates more than once after starting a rate-hiking cycle. This has added to expectations that Wednesday’s increase may not be the last one.

Morgan Stanley economists changed their forecast this week, as noted by CNBC. They previously expected no further rate hikes, but now expect two increases, partly because of Fed Chairman Kevin Warsh’s public comments and the recent rise in oil prices.

Morgan Stanley also pointed to inflation linked to the expansion of artificial intelligence and a broader change in market expectations toward more rate increases. The firm expects the next rate increase to come in December. Morgan Stanley chief US economist Michael Gapen said not raising rates again could hurt the Fed’s credibility and push up longer-term risk premiums.

The Fed’s interest-rate decision can affect several borrowing and saving costs for consumers. These include mortgages, credit cards, auto loans and savings accounts. The quarter-point rate increase could make some types of borrowing more expensive. Consumers could face higher costs when carrying credit card debt or financing a new car.

Some home loans could also become more expensive as interest rates move higher. However, the impact on mortgages can vary because mortgage rates are also influenced by longer-term bond yields and other market factors.

US stocks remained in positive territory after the Fed announced the quarter-point rate increase on Wednesday afternoon. The S&P 500 was up about 0.4% on the day after the announcement.

The Nasdaq Composite gained about 0.8%, while technology stocks remained higher following the Fed’s decision. The Dow Jones Industrial Average was little changed, staying close to the flat line during the session.

The 10-year US Treasury yield moved lower after the Fed announcement. It was last down by nearly 5 basis points at 4.947%.

Also read: Why are stock futures rising before US Fed rate decision? S&P 500, Nasdaq, Dow react as 10-year yield hits 5%

The Federal Reserve’s latest economic projections show that inflation could rise slightly by the end of 2026. The Fed’s median forecast for core personal consumption expenditures (PCE) inflation is now 3.4% for the end of 2026. That is slightly higher than the Fed’s previous 3.3% forecast from its June meeting.

The latest core PCE reading also showed inflation at 3.3% year-over-year in July, according to the latest available data. Fed officials also expect one more rate hike in 2026 after Wednesday’s increase. Their median projection puts the federal funds rate at 4.1% by the end of the year.

There was some difference among Fed officials over how many more increases may be needed. Twelve FOMC members indicated that they expect one more rate hike this year. Another four members signalled that they expect two more rate hikes before the end of 2026.

Meanwhile, two members said rates should remain at their current level, indicating that they do not expect another increase this year. Warsh did not submit a rate forecast in the latest projections. He also withheld his rate forecast in June, when the Fed last released its projections. The projections show that the Fed is still watching inflation closely, while a majority of officials see at least one additional rate increase before the end of the year.

Durva More is a Senior Content Producer at Hindustan Times, where she covers finance, and global news. She brings experience across digital and television journalism, with a strong focus on breaking news, business reporting, and international affairs. Before joining Hindustan Times, Durva worked as an International News Writer at The Economic Times, covering a diverse range of subjects including global politics, business, sports, entertainment, and major world events. She also worked as a Business Reporter with NDTV Profit. A postgraduate diploma holder in Journalism from the Asian College of Journalism, Durva is passionate about field reporting and storytelling. She thrives on the adrenaline of chasing stories, speaking with people from different walks of life, and amplifying voices that deserve to be heard. Her reporting is driven by curiosity, accuracy, and a commitment to making complex subjects accessible to readers. When she is not chasing stories or covering breaking news, Durva enjoys reading books and painting. She loves exploring new ideas, meeting people, and learning about different perspectives. For her, both journalism and art are ways to understand the world and tell stories that matter.Read More