USA

Fed Raises Rates for the First Time Since 2023 as Markets Stay Calm

co-written by newsrooms.ai17. September 2026, 01:44

The U.S. Federal Reserve raised its benchmark interest rate by 25 basis points on Wednesday, lifting the federal funds rate to a target range of 3.75% to 4%, up from 3.5% to 3.75%. It is the Fed’s first rate hike since 2023. All 12 voting members of the Federal Open Market Committee (FOMC) backed the decision.

The move came as no surprise to markets. According to CME’s FedWatch tool, traders had priced in a 93% probability of a hike ahead of the meeting, up from less than 50% a month earlier. A Wall Street Journal survey of major banks pointed the same way: nearly all of them expected a hike, and most, including Barclays, Citigroup, JPMorgan, Morgan Stanley and UBS, forecast a total of 50 basis points of tightening by year-end. Bank of America, Deutsche Bank and RBC expect as much as 75 basis points.

Inflation and Energy Prices Drive the Decision

In its official statement, the Fed said economic activity is expanding at a solid pace and job gains have kept up with the growth of the workforce. Inflation, however, remains elevated. The rate hike is meant to support a timelier return to the central bank’s 2% inflation target.

The latest inflation data tipped the balance. The Producer Price Index rose 5.4% year over year in August, up from 4.8% in July. According to the National Association of Manufacturers, more than three quarters of the increase in goods prices came from higher energy costs. Consumer prices rose 3.4% on an annual basis, while the monthly increase accelerated to 0.4%. Core inflation, which excludes food and energy, also picked up. After those figures were released, Goldman Sachs and Piper Sandler, which had previously expected the Fed to hold rates steady, also changed their forecasts, Reuters reported.

The decision puts Fed Chair Kevin Warsh in a delicate position. It was only his third meeting since being confirmed in May, and President Donald Trump had nominated him explicitly expecting lower interest rates. Trump, Vice President JD Vance and Treasury Secretary Scott Bessent had all publicly called for rate cuts in recent weeks. Warsh, however, had already signaled a hike.

Oil at $107 and Diesel at a Record High

Pressure from the energy side remains high. Oil is once again trading at around $107 a barrel, weighed down by the fallout from the conflict with Iran. In the U.S., diesel prices have also hit an all-time high. That matters to the Fed: more expensive diesel raises transportation and logistics costs, which eventually feed through to prices across the economy. Energy costs are one of the main reasons the central bank decided it could no longer wait.

Stocks and Crypto See No Major Swings

Financial markets avoided sharp moves, most likely because the hike was widely expected and already priced in. Equity investors had prepared for the decision after the inflation data came out, and the reaction was muted accordingly.

Bitcoin traded between $75,000 and $75,800 around the announcement and climbed to about $76,000 shortly afterward. The broader crypto market lost around 2.2% on the day. Sentiment had already been subdued: Bitcoin is trading well below its September high of roughly $82,000, and the failed Senate vote on the Clarity Act had weighed on the market. Analysts see a key support zone between roughly $73,500 and $75,600, which Bitcoin has held for now. The Crypto Fear & Greed Index fell from 69 to 51 points, signaling neutral market sentiment.

What Comes Next

The Fed’s next meeting is scheduled for late October. Markets are watching the December meeting most closely, when the central bank will also release its updated rate projections (the so-called dot plot). That meeting should show whether this hike remains the only one this year or marks the start of a series of further increases.