Fed Raises Benchmark Rate by 0.25%P...Signals Further Hike Possible This Year (Comprehensive)

Rate Raised to 3.75–4.00% Unanimously by 12 Members

Dot Plot Projects 4.1% Through End of Next Year

Growth and Inflation Outlook Raised Together

The U.S. central bank, the Federal Reserve (Fed), has raised its benchmark interest rate by 0.25 percentage points. Fed officials presented a year-end interest rate forecast of 4.1% per annum, signaling the possibility of one more rate hike by the end of the year. This outlook is based on their assessment that strong consumer spending and corporate investment are supporting growth, while inflation remains at elevated levels.

Federal Reserve (Fed) Reuters Yonhap News

On September 16 (local time), the Fed announced after its regular Federal Open Market Committee (FOMC) meeting that it had raised the target range for the federal funds rate—the benchmark interest rate—from the previous 3.50–3.75% per annum to 3.75–4.00% per annum, an increase of 0.25 percentage points.

This rate hike decision was made unanimously by all 12 FOMC members. In its statement, the Fed said, "Economic activity is expanding at a solid pace," adding, "While uncertainty remains high due to geopolitical factors and other influences, domestic spending in the United States continues to show resilience."

The Fed also gave a positive assessment of productivity and business investment. "Productivity growth remains robust and capital investment is solid," the Fed noted, explaining, "Employment growth is keeping pace with labor force increases, and there has been little change in the unemployment rate."

On the other hand, the Fed heightened its vigilance over inflation. "Inflation remains elevated," it stated, "and this policy decision should help bring the inflation rate back toward the Committee's 2% target more quickly." The statement continued, "The Committee is committed to achieving price stability."

This suggests that while the Fed believes the pace of economic growth and the labor market can withstand further rate increases, curbing high inflation remains the top priority in its monetary policy decisions.

Dot Plot Suggests One More Rate Hike This Year

September FOMC

According to the dot plot released by the Fed on the same day, the median year-end benchmark interest rate forecast by FOMC participants was 4.1% per annum. This implies that there may be one more 0.25 percentage point increase during the two remaining meetings this year. The 4.1% forecast is 0.3 percentage points higher than the previous projection of 3.8% made in June. Out of the 18 members who submitted their projections on the dot plot, 16 expected at least one additional rate increase by year-end.

The possibility of maintaining a high interest rate policy into next year has also increased. The median forecast for the year-end 2027 benchmark rate was 4.1% per annum, unchanged from this year's year-end forecast. Compared to the June projection of 3.6% for next year, this reflects an upward revision of 0.5 percentage points. The year-end 2028 rate forecast was also raised from 3.4% to 3.9% per annum.

Based on the dot plot, it is expected that the Fed will raise the benchmark rate once more this year, maintain it at that level through the end of next year, and then begin a gradual reduction starting in 2028.

The Fed Raises Growth Expectations, Lowers Unemployment Forecasts... Also Increases Inflation Outlook

A worker is stocking products at a supermarket located in New York. New York, USA – Photo by Yoonjoo Hwang

The Fed raised its forecast for U.S. economic growth while also upwardly revising its inflation projections. The full-year real gross domestic product (GDP) growth forecast for this year was raised from 2.2% in June to 2.3%. The projection for 2027 was also raised, from 2.3% to 2.4%. For 2028, the forecast remained at 2.2%, and for 2029, the Fed expects 2.1% growth.

Meanwhile, this year's forecast for the personal consumption expenditures (PCE) price index was revised upward from 3.6% to 3.7%. The outlook for core PCE inflation, which excludes the more volatile food and energy components, was also increased from 3.3% to 3.4%.

The Fed expects that the PCE inflation rate will decline to 2.3% in 2027, 2.1% in 2028, and reach the target level of 2.0% in 2029. The forecast for core PCE inflation is 2.5% in 2027, 2.2% in 2028, and 2.0% in 2029.

The labor market outlook has improved as well. The year-end unemployment rate forecast for this year was lowered from 4.3% to 4.1%. The projections for 2027 and 2028 were also reduced from 4.3% to 4.1%, and from 4.2% to 4.1%, respectively. The forecast for 2029 stands at 4.1%.

The Fed's decision to significantly increase the path of its benchmark interest rate, while raising its growth projections and lowering its unemployment outlook, reflects the assessment that the U.S. economy is robust enough to withstand monetary tightening, but that inflationary pressures may persist longer than previously expected.

This content was produced with the assistance of AI translation services.