Fed Hikes to 3.75%-4.00%, Signals One More Hike in 2026

By Stock Titan Editorial Team · Published September 16, 2026

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What the Fed decided

The Federal Open Market Committee raised the federal funds target range by 25 basis points to 3.75% to 4.00%. The range had sat at 3.50% to 3.75% since December 10, 2025, when the Fed delivered the last of six cuts that began with a half-point move in September 2024, continued with five quarter-point moves, and took the rate down by 1.75 percentage points in all, according to the Fed's record of policy changes. The statement said the committee "decided to raise the target range for the federal funds rate by 1/4 percentage point to 3-3/4 to 4 percent, in support of the Federal Reserve's dual mandate," and on prices it kept to three sentences: "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." The vote was 12 to 0, so the three regional presidents who had dissented for a hike in July got their increase and nobody dissented in the other direction. The statement described economic activity as "expanding at a solid pace," with productivity growth "strong," capital investment described in the same terms, and job gains that "have kept pace with the workforce."

The new range is one the economy has seen before, though only briefly. The funds rate passed through 3.75% to 4.00% between November 3 and December 14, 2022, on the way up to the 5.25% to 5.50% peak that held from July 2023 until the cuts began. Since June the committee's statements have used the shortened form Warsh introduced, which dropped the old paragraphs of forward guidance in favor of a single commitment that "the Committee will deliver price stability." For a plain explanation of what the target range is and how the Fed moves it, see how Federal Reserve interest rates work.

Why the Fed reversed course after nine months

Three reports in the two weeks before the meeting turned a close call into a near certainty, and each one pointed the same way. The August Consumer Price Index, released September 11, rose 0.4% on the month and 3.4% over the year, while the core index (everything except food and energy) rose 0.3% against a 0.2% forecast, leaving core inflation at 2.4% over twelve months. Energy was the loud part of the report, up 16.3% over the year with gasoline up 27.4%, but shelter still ran at 3.0% and food at 2.7%, so the pressure was broader than the pump.

A day earlier the Producer Price Index had jumped 0.4% on the month and 5.4% over the year, up from 4.8% in July, with diesel prices alone up 24.1% in a single month. And on September 4 the August jobs report showed employers adding 162,000 positions, roughly triple the 53,000 forecasters expected and the strongest month since March according to Quartz's summary of the release, with unemployment steady at 4.1% and hourly earnings up 3.1% over the year. A Fed that had been hoping the labor market would do some of the cooling for it got the opposite message.

Behind those three prints sits the oil shock. West Texas Intermediate crude settled at $102.48 a barrel and Brent at $107.63 on September 9, the highest settles since May, per CNBC's market coverage, as the conflict with Iran kept the Strait of Hormuz effectively shut. The Fed's preferred inflation gauge, the PCE price index, was already running at 3.7% in July with core PCE at 3.3%, according to the Bureau of Economic Analysis figures, and that was before August's energy move fed through.

Warsh had laid the groundwork three weeks earlier. In his Jackson Hole keynote on August 28 he said that 54% of the components in the PCE basket had risen faster than 3% over the prior twelve months, against 32% in the two decades before the pandemic, and that the six-month annualized check gave much the same answer at 49%.

He described credit spreads as sitting near the low ends of their historical ranges, lending standards as on the easier side, and capital spending as up 9%, which is a description of financial conditions that are doing little to restrain demand. His line on what would justify a move was the one markets kept quoting: "We must be confident that underlying inflation is moving to our objective, clearly and at sufficient speed. Otherwise, we have work to do." He also put a number on how long the problem has lasted, saying that "the responsibility for 65 months of sustained, elevated inflation sits squarely with the central bank." PCE inflation has been above 2% since the spring of 2021.

The second-fastest policy U-turn since the early 1990s

What makes this hike unusual is how soon it followed a cut. The Fed lowered rates on December 10, 2025 and raised them on September 16, 2026, a gap of about nine months. Going back to the early 1990s, only one reversal has been quicker: the Fed cut three times in the autumn of 1998 during the Russian default and Long-Term Capital Management crisis, then started hiking again on June 30, 1999, about seven and a half months after the last cut. Every other turn from easing to tightening took a year or more.

Dates are from the federal funds rate history compiled by FedPrimeRate, which matches the Fed's own record for the years it covers. The 1999 case is worth a second look because it is the closest analogue. Then, as now, the Fed had cut for reasons that faded quickly and found itself with an economy stronger than the cuts assumed. That cycle went on to six hikes in under a year. Whether this one does is a question the committee's projections speak to only in part.

A hike the bond market had already priced

By the morning of the decision, fed funds futures implied a probability above 90% of a quarter-point move, per Yahoo Finance's live coverage of the CME FedWatch tool, and roughly 23 basis points of tightening were in the price. That degree of certainty has a track record. Data compiled by Bloomberg and reported on September 15 shows that since 2008, whenever the market has priced a hike this confidently, the Fed has delivered it every time. Deutsche Bank strategists quoted in Kiplinger's live coverage went further, writing that a hold "would be the biggest dovish surprise at a scheduled FOMC meeting on record (going back to 1994, when the FOMC began announcing the policy action at the conclusion of its meetings)."

The pricing had swung hard in six weeks. On the day of the July 29 meeting the market saw only a 38% chance of a hike, the Fed held, and bonds sold off. Warsh's Jackson Hole speech pushed the September odds to roughly a coin flip, between 48% and 56% depending on the venue, according to CNBC, and the August CPI took them past 90%. The Reuters economist poll moved just as sharply: in the survey taken September 4 to 9, 65 of 93 economists still expected a hold; in the one taken after the CPI report, 86 of 101 expected a hike, and 37 of 70 expected at least one further hike by the end of March 2027.

The more striking fact is that long-term rates did not wait for the Fed. The 10-year Treasury yield touched 5.04% on September 15, its highest since 2007 according to CNBC, having started the year's run near 3.95% in late February. Mortgage rates followed: HousingWire's rate tracker showed the 30-year conforming rate climbing from 5.99% at the end of February to 7.22% by mid-September, and 7.28% on the eve of the meeting, all of it before the Fed moved a single basis point. In that sense the market did the first round of tightening on its own, and the Fed's hike ratifies conditions that borrowers have been living with for months. The 2-year yield, which tracks policy expectations most closely, stood at 4.65% on September 14, per Federal Reserve data, which is roughly where the funds rate would sit after three more quarter-point hikes.

Inside the committee: who pushed for it and who pushed back

Twelve people vote on the FOMC in 2026: the seven governors (Warsh, Michael Barr, Michelle Bowman, Lisa Cook, Philip Jefferson, Christopher Waller and Jerome Powell, who stayed on the Board as a governor after his term as chair ended in May) plus New York Fed President John Williams and this year's four rotating regional presidents, Beth Hammack of Cleveland, Neel Kashkari of Minneapolis, Lorie Logan of Dallas and Anna Paulson of Philadelphia, according to the Fed's committee roster.

The push for a hike came from the regional side first. At the July 29 meeting Hammack, Kashkari and Logan all voted against holding and said they preferred an immediate quarter-point increase, per the July statement. Two presidents who do not vote this year, Jeffrey Schmid of Kansas City and Alberto Musalem of St. Louis, later said they would have joined them, according to Yahoo Finance's account of the July minutes, and the minutes themselves recorded a broader view that "policy tightening would likely be necessary if inflation did not decline," with a few members arguing that acting early would "help forestall the need for a steeper and potentially more costly sequence of tightening moves."

The clearest voice for waiting was Governor Waller. In a Reuters interview on September 3 he said that if the improvement in the data continued he "would be inclined to support holding the target for the federal funds rate at its current setting," pointing out that three-month core inflation had fallen from 4.76% in February to 3.05% by July. He also set his own tripwire in the same interview: "it may not take much acceleration in inflation to nudge me into supporting tighter policy." The August core CPI print of 0.3% was above the 0.2% he had said would keep him on hold, and in the event he voted with the rest of the committee for the increase.

The dissents Warsh has drawn are themselves a piece of Fed history. Three votes against a chair at only his second meeting puts him in rare company: Arthur Burns drew three dissents at his very first meeting in February 1970, and Paul Volcker drew two at his first and four at his second in 1979, according to Reuters, while Jerome Powell's first dissent did not arrive until his 11th meeting. Warsh has said he wants it that way. "If the central bank has that good family fight, I think they're going to make better decisions," he told senators at his confirmation hearing, per Yahoo Finance. What has never happened, as NPR's Planet Money noted in February, is a chair being outvoted on whether rates go up or down; the closest precedent is Volcker losing a Board vote on the discount rate in 1986.

How new Fed chairs have handled their first hike

Warsh was sworn in on May 22, 2026, after a 54 to 45 Senate vote, and this was his third meeting in the chair. He held in June by a unanimous 12 to 0 vote and held again in July over the three dissents, so the hike came later in his tenure than it did for several predecessors.

Alan Greenspan took office on August 11, 1987 and pushed through a discount-rate increase from 5.5% to 6% on September 4, within a month, per TIME's account of that autumn. Ben Bernanke raised the funds rate to 4.75% at his first meeting on March 28, 2006, the fifteenth straight increase of that cycle, per the Fed's statement. Jerome Powell raised rates to 1.50% to 1.75% at his first meeting on March 21, 2018, per NBC News. Janet Yellen is the exception in the other direction: she took over in February 2014 and did not preside over a hike until December 2015. Start dates are from the St. Louis Fed's chair timeline.

The difference is that Greenspan, Bernanke and Powell each inherited a tightening cycle already in motion. Warsh inherited an easing cycle that had run for fifteen months and reversed it, which is a different kind of decision and a harder one to explain to the public, since the same institution which judged in December that rates could come down is now saying they were too low.

A president who wanted cuts, a chair who hiked

President Trump nominated Warsh on January 30, 2026, after months of public criticism of Powell for not cutting faster, and he has kept up the pressure through the summer. On September 4, after the strong jobs report, he wrote that "High interest rates put the U.S.A. at a very unfair disadvantage, and I won't allow that to happen!" according to NBC News, which also quoted him saying "We shouldn't be at 4%" and that he would prefer a rate closer to 1%. In the same report National Economic Council chair Kevin Hassett said the president "will have something to say about it" if the Fed made a big move. Trump has also said that when Warsh took office he told him "Don't look at me, don't look at anybody, just do your own thing and do a great job."

The historical mirror is the one economists keep bringing up, and it runs the other way. In 1972 President Nixon pressed Fed Chair Arthur Burns to loosen policy ahead of the election, a case documented from the Nixon tapes in a 2006 Journal of Economic Perspectives paper, and the inflation that followed took most of a decade to unwind. Today's version has a president pressing for cuts and his own appointee raising rates instead. Whether that reads as independence or as a chair boxed in by data is a judgment each reader can make; what is observable is that the two policies the administration has pursued most visibly, tariffs and the confrontation with Iran, are the two forces the July minutes name, alongside AI-related demand, for keeping inflation elevated.

The dot plot: one more hike this year, then a plateau

September is one of the four meetings a year that comes with a Summary of Economic Projections, the document that includes the dot plot of where each participant thinks rates should be at the end of each year. The new one moved further than the hike itself. The median projection for the end of 2026 rose to 4.1% from 3.8% in June, a quarter point above today's 3.875% midpoint, and 16 of the 18 participants placed their dot above today's level: 12 at 4.125% and 4 at 4.375%, with only 2 at 3.875%. The 2027 median is also 4.1%, up from 3.6%, which describes rates staying at that level through next year rather than drifting back down, and the longer-run median edged up to 3.2% from 3.1%. The inflation forecasts moved up with the dots: PCE inflation at 3.7% for 2026 (from 3.6%) and core PCE at 3.4% (from 3.3%), while the unemployment forecast fell to 4.1% from 4.3%. Eighteen participants submitted projections; Warsh again submitted none, telling reporters that the projections "reflect the views of my colleagues on the committee. But as in June, I've not offered a projection of my own."

The baseline for those comparisons is the June projections. There the median dot for the end of 2026 had already flipped from 3.4% in March to 3.8%, above the range in force at the time, and nine of the eighteen participants had at least one hike penciled in; the full distribution was one dot at 4.375%, five at 4.125%, three at 3.875%, eight at 3.625% and one at 3.375%. Warsh did not submit a dot in June, saying he had "refrained from offering any projections of my own, consistent with my long-held views."

Read together, the two rounds show a committee that moved from split to settled in three months: in June half the participants saw a hike this year and half did not; in September all but two see at least one more after today's. The dots are individual views and never a committee plan, and Warsh has said he expects to propose changes to the projections themselves once his communications task force reports at year-end. The June version of this exercise is covered in detail in our June 17, 2026 decision article; for how official guidance can diverge from what markets price, see guidance versus consensus estimates.

The press conference: "too high and for too long"

Warsh's 2:30 PM press conference moved markets more than the decision did, and the reason is visible in his opening lines, as carried in Yahoo Finance's live coverage. "Our predominant focus is on the price stability side of our mandate," he said. "The plain fact is that inflation is too high and has been for too long." On the summer's softer monthly readings he repeated the Jackson Hole judgment word for word: they "do not tell me that underlying trends have meaningfully improved."

He rejected the idea that fighting inflation means hurting jobs. "I don't believe that we need to do harm to the labor markets to achieve our objective. I don't believe that the two parts of our mandate, price stability and full employment, are working at cross purposes over the medium term." On oil he drew the line the committee has drawn since spring: "We cannot affect any individual price, whether it be oil prices, whether it be foodstuffs at the grocery store. But what we can do and will do is ensure that any change in relative prices don't broaden out, don't have second and third order effects in the economy."

Asked about the White House, he gave the shortest answer of the afternoon: "We stay in our lane. We'll let people that do trade policy and fiscal policy stay in their lane too," and, on any conversation with the president, "I've got nothing for you." He made the case for the hike in terms of who pays for inflation: "Those who are least well off have the most to gain from a durable expansion, a solid labor market, and stable prices," adding that with inflation at the 2% objective, "when they get their wages, they can put their head above water and deliver real take-home pay increases." What he did not offer was any count of future moves, consistent with the no-guidance stance described below.

What Warsh has changed about how the Fed talks

Since June the post-meeting statement has been cut to a fraction of its former length and stripped of forward guidance, the practice of telling markets what the Fed expects to do next. Its centerpiece is now a single declarative sentence, "The Committee will deliver price stability," according to Global Finance. Warsh's argument, made at length at Jackson Hole, is that guidance creates a "hall of mirrors" in which the Fed watches market prices that are themselves built on the Fed's own hints, and everyone ends up blind to new information. He has said that he wants markets to react to incoming data rather than to the Fed's commentary about it, and that press conferences are useful "but when you have one, you want to make sure you have something important to say," as PIMCO's account of his first meeting recorded.

The reform agenda is wider than communications. At his first meeting Warsh announced five task forces, covering communications, the balance sheet, data sources, productivity and jobs, and the inflation framework, with recommendations due by the end of the year. The balance sheet review, reported by Bloomberg, covers a $6.7 trillion portfolio and the "ample reserves" system that supports it; the Fed stopped shrinking its holdings at the end of 2025. In July he floated cutting the number of scheduled meetings from eight to six a year, arguing that longer gaps would let more information accumulate; the minutes say the committee "offered input and reached no conclusion."

Today's implementation note shows how the hike reaches the plumbing. From September 17 the rate paid on reserve balances rises to 3.90%, the standing repo facility lends at 4.0%, the overnight reverse repo facility pays 3.75% with a $160 billion per-counterparty limit, and the discount rate goes up a quarter point to 4.0%. The balance sheet instruction did not change: the desk keeps buying Treasury bills to hold reserves at an ample level and reinvests maturing agency securities into bills, so the Warsh Fed is raising the price of money while still adding to its holdings, which is the arrangement the balance sheet task force is meant to review.

How markets reacted

The first half hour after the statement was quiet, with the S&P 500 up about 0.3% and the Nasdaq up about 0.7%, per Yahoo Finance's market coverage. The turn came during the press conference: as Warsh talked about inflation being too high for too long, the Dow fell more than 700 points at its worst before closing down 631.21 points, or 1.21%, at 51,461.90. The S&P 500 finished down 0.45% at 7,551.81, its lowest close in over a month, while the Nasdaq ended almost unchanged at 25,978.42, down 0.01%, held up by the large technology names.

The bond market read the same afternoon differently. The 2-year yield, which carries the market's view of the next few meetings, barely moved, down about one basis point, because one more hike was already in the price; the 10-year pushed back above 5% during the afternoon before easing about four basis points from its high. Gold fell 0.65% to $4,304.50 and West Texas crude dropped 3.57% to $102.05 as the dollar firmed. The pattern, stocks down and short yields flat, is the signature of a market that had priced the move and was repricing the tone.

The setup was already defensive. On September 15 the Dow fell 0.63% to 52,093.11, the S&P 500 lost 0.45% to 7,585.73 and the Nasdaq dropped 0.78% to 25,981.57, leaving the two broader indexes at their lowest closes in more than a month, per CNBC. Gold had slipped to a six-week low near $4,263 an ounce as the dollar firmed, per USAGOLD's daily report. The Treasury curve was flat by historical standards, with the 10-year yielding only about a third of a point more than the 2-year, which is the shape a curve takes when investors expect short rates to rise toward long ones.

That is what made the afternoon legible: with the move itself priced, the reaction keyed off the projections and the press conference, and it showed up in equities before it showed up in the 2-year yield, which had already discounted the next step.

What usually happens to stocks after a first hike

The history here is more mixed than either the bulls or the bears tend to admit. Research from LPL Financial, summarized by AdvisorAnalyst, looked at the first hike of every cycle since 1994 and found that the S&P 500 posted a negative average return in each of the first four months afterward, then recovered, with an average twelve-month gain of 6.7% and a median of 10.7%. The spread around those averages is wide. After the March 1997 hike the index was up 42% a year later; after the March 2022 hike it fell for more than a year and endured a 25% drawdown while the Fed raised rates into the worst inflation in four decades.

Those are tendencies over a small number of episodes, and this cycle has features none of the others shared. The 10-year yield was above 5% before the first hike, oil was above $100, and the equity market had been led for two years by capital spending on artificial intelligence, which Warsh himself flagged as accounting for over half of the 9% rise in business investment. Rate-sensitive groups such as small caps and homebuilders have historically felt a higher discount rate first, and bank lending margins have tended to widen when short rates rise, though both patterns varied a good deal from cycle to cycle. If you want to see what a change in the rate of return does to a portfolio over time, the compound interest calculator lets you compare paths side by side.

What it means for borrowers and savers

A quarter-point move in the funds rate reaches households through several different channels, and they run at different speeds. Variable-rate debt moves first: credit cards that carry a balance averaged over 22% APR this year, according to Yahoo Finance's explainer on Fed rate effects, and most card agreements reprice within a billing cycle or two. Home equity lines and many private student loans follow the same path. An existing 30-year fixed mortgage does not change at all; new mortgage quotes track the 10-year Treasury rather than the funds rate, which is why they had already climbed above 7% before the Fed acted. The Freddie Mac weekly average stood at 6.76% on September 10, per Federal Reserve data.

Savers see the other side, in principle. Yields on money market funds and Treasury bills move up with the funds rate within days. The national average savings account rate, on the other hand, was still well under 1% before the meeting, per the same explainer, and the big banks have historically been slow to pass hikes through to ordinary deposits, so the gap between a high-yield account and a legacy one tends to widen after a move like this rather than close.

Other central banks are moving the same way

The Fed is the second of the big three Western central banks to turn. The European Central Bank raised its deposit rate from 2.25% to 2.5% on September 10, citing energy-driven inflation from the Middle East conflict, per the House of Commons Library's monetary policy briefing, which also records the Bank of England holding its Bank Rate at 3.75% in July. The Bank of England decides on September 17 and the Bank of Japan on September 18. In June the ECB and the Bank of Japan both hiked in the same week that the Fed held and China's central bank cut; September has pulled the Fed back toward the pack.

What to watch next

• Whether more hikes follow. The September dots point to one more by December. The Reuters poll had a majority of economists expecting at least one more hike by March, and the Conference Board's preview argued that the Fed "rarely does one and done." The October 27 to 28 meeting has no projections attached, so the statement and the press conference will carry all the weight.
• The next two PCE reports. August's arrives at the end of September and September's at the end of October. Core PCE has held between 3.3% and 3.4% since April. Warsh has set "sufficient speed" toward 2% as the test, without saying what number would meet it.
• Oil and the Strait of Hormuz. A reopening would take the fastest-moving part of the inflation problem off the table, and Goldman Sachs' December Brent forecast of $85, reported in the same CNBC coverage, assumes something like that; its risk case runs above $120 in 2027 if Gulf output stays 4 million barrels a day below prewar levels.
• The task force reports. Recommendations on the balance sheet, the dot plot and the meeting calendar are due by year-end, and any of them could change how the December 8 to 9 meeting is communicated.
• The 10-year. Mortgage rates and equity valuations respond to it more than to the funds rate. If long yields fall on the view that the Fed has regained control, the hike could ease financial conditions on net; if they keep rising, the tightening is running well ahead of the Fed.

Frequently asked questions

The information provided in this article is for educational and informational purposes only. It does not constitute financial advice, investment recommendation, or an endorsement of any particular investment strategy. Past performance does not guarantee future results. Investors should conduct their own research and consult with a qualified financial advisor before making investment decisions.

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