Fed raises rates for first time in over 3 years, to 3.75-4% range

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The US Federal Reserve announced a 0.25% increase in its policy rate to a range of 3.75-4% at its meeting on September 15-16, ending a pause of more than three years and signalling continued vigilance against inflation. Fed Chair Kevin Warsh, who took office in May 2026, said inflation remains elevated and that this rate hike aims to help inflation return to the 2% target more quickly. The Fed's new economic projections indicate the policy rate could rise by at least another 0.25% by the end of this year, with the median year-end rate at 4.00-4.25%. The Fed also raised its 2026 PCE inflation forecast from 3.6% to 3.7% and expects inflation to return to the 2% target in 2029, later than previously projected. Its 2026 GDP forecast was revised slightly up to 2.3% from 2.2%, and the year-end unemployment rate is expected at 4.1%. After the meeting, the yield on 2-year US Treasury notes rose to its highest level in more than two years. US Treasury Department data as of September 16 showed the 10-year Treasury yield surging to 5.00%, the 2-year at 4.67%, and the 30-year at 5.36%, flat to slightly lower. US stocks fell immediately on the news, with the Dow dropping more than 1% while the Nasdaq barely moved and the VIX edging slightly higher. Wolfe Research found that in the 6-12 months after the Fed's first rate hike, stocks typically recover into positive territory.

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