US Fed effects first rate hike since July 2023 to 3.75-4.00% range

The Federal Reserve announced a 0.25 percentage‑point increase in its policy rate, moving the target range to 3.75%‑4.00% in a unanimous vote that introduced the first rate hike since July 2023. The decision was led by the newly appointed chair, Kevin Warsh, and came after a two‑day policy meeting that underscored the central bank’s commitment to curbing price growth.

The adjustment follows a projection that 16 of the 18 policymakers anticipate at least one more quarter‑point increase before year‑end, with the rate potentially reaching 4.00%-4.25% by December. Updated forecasts lifted the expected PCE inflation rate to 3.7% and pushed back the 2% inflation target to 2029, while GDP growth was nudged up to 2.3% and unemployment to 4.1%. Warsh is set to elaborate on the decision at a press conference at 2:30 p.m. EDT, and the announcement arrives as mortgage rates near 7% and gasoline prices sit a third higher than a year ago.

The hike reflects broader economic strains, including higher import tariffs, an energy shock linked to the U.S.–Israeli conflict with Iran, and a surge in capital spending from the artificial‑intelligence boom. It also occurs less than two months before the midterm elections, where rising borrowing costs and fuel prices could influence voter sentiment. Financial markets are expected to react to the Fed’s tighter stance, with long‑term Treasury yields already on the rise.