The Federal Reserve raised its benchmark interest rate by a quarter percentage point Wednesday, moving the federal funds rate to a target range of 3.75% to 4% as policymakers continue working to bring inflation back to their 2% goal.
The Federal Open Market Committee approved the increase in a unanimous 12-0 vote. The Fed said it will continue maintaining ample reserves in the banking system.
In its statement, the committee described the economy as expanding at a solid pace, with resilient domestic spending despite elevated uncertainty tied in part to geopolitical developments. Productivity growth is strong, capital investment is robust, and job gains have kept pace with the workforce, the Fed said, with unemployment little changed.
Inflation, however, remains elevated, and the Fed said Wednesday’s rate increase is intended to support a timelier return to its 2% target.
Speaking at a press conference following the meeting, Fed Chairman Kevin Warsh said the U.S. economy is strengthening, pointing to improvements in hiring, private-sector earnings and business capital investment. He noted credit flows have been robust, particularly for businesses, and said he would be hard-pressed to characterize broad financial conditions as restrictive — a view he said was widely shared across the committee.
The unemployment rate stands at around 4.1%, with job openings and weekly hours both increasing, Warsh said. Unemployment claims, on a four-week moving average, are running at levels consistent with full employment.
Inflation remains the committee’s dominant concern, Warsh said. Based on recent CPI and PPI data, he estimated the 12-month change in total PCE prices was around 3.6% in August, with core PCE and CPI running at roughly 3.2% and 2.4%, respectively. He added that too many categories are still posting price increases above 3% on both a six- and 12-month basis, and that commodity input prices have risen since the committee’s last meeting.
Warsh said the committee concluded that its standard for further easing — confidence that underlying inflation is moving toward the 2% objective “clearly and at sufficient speed” — had not yet been met.
The Fed’s Summary of Economic Projections released Wednesday shows the median participant expects real GDP growth of 2.3% this year and 2.4% next year. Total PCE inflation is projected at 3.7% this year, falling to 2.3% in 2027. The unemployment rate is expected to hold steady at about 4.1%. The median projection puts the appropriate federal funds rate at 4.1% by year-end, holding there through 2027. Committee members see inflation risks tilted to the upside, with labor market risks roughly balanced.
Warsh noted that discussions at recent international gatherings — including the Jackson Hole policy symposium, the G-20 meeting in Asheville, and a central bank conference in Basel — showed most advanced economies are grappling with similar price pressures.
“The Fed has a role in sustaining the economic progress happening in America right now, and the rising opportunities that come with it,” Warsh said, adding that those who are least well-off stand to gain the most from a durable expansion, a solid labor market and stable prices.
