Fed Raises Policy Rate by 25 Basis Points to 3.75-4.00 Percent Range
The US Federal Reserve raised interest rates for the first time since 2023 and shared new projections and economic expectations.
The US Federal Reserve (Fed) raised its policy rate by 25 basis points to the 3.75-4.00 percent range. Following the first interest rate hike implemented since 2023, market focus turned to statements by Fed Chair Kevin Warsh and the bank's updated economic projections.
Interest Rate and Market Reaction
The Fed raised its policy rate by 25 basis points to the 3.75-4.00 percent range, marking the first rate hike since 2023. Following the decision, the US 10-year Treasury yield hovered around the 5 percent threshold, while the average interest rate for a 30-year fixed mortgage reached 6.97 percent.
In the cryptocurrency market, investors increased their net buying tendency in stablecoins to 28 percent ahead of the decision, while buying trends for Bitcoin and Ethereum assets declined.
Inflation and Growth Assessment from Kevin Warsh
Fed Chair Kevin Warsh stated that inflation has remained high for a long time, noting that numerous items in CPI and PPI data have increased at rates above 3 percent on a six- and twelve-month basis. Warsh emphasized that recent months have seen improvements in new hires and capital investments.
Warsh expressed that a strong labor market, summer inflation remaining above target, and geopolitical developments have been influential in changing the outlook since July.
Updated Inflation Projections
According to the Fed's Summary of Economic Projections, the median projection for core PCE inflation, which excludes food and energy prices, was revised upward from 3.3 percent to 3.4 percent for 2026. The overall PCE inflation projection was raised to 3.7 percent.
Core PCE inflation is expected to decline to 2.5 percent in 2027, 2.2 percent in 2028, and reach the 2 percent target in 2029.
Labor Market and Growth Forecasts
Fed officials lowered the median unemployment rate projection for 2026 from 4.3 percent to 4.1 percent and projected that this rate will remain at 4.1 percent through 2029.
The bank raised its real GDP growth forecast to 2.3 percent for 2026 and 2.4 percent for 2027, while keeping the 2028 forecast at 2.2 percent and projecting 2.1 percent growth for 2029.
Morgan Stanley Economists' Expectations
Morgan Stanley economists projected that the Fed will implement another interest rate hike in December. The institution updated its previous forecast of expecting no rate hike this week to anticipate two increases.
Morgan Stanley US Chief Economist Michael Gapen wrote that failing to hike interest rates could undermine the Fed's credibility.