Federal Reserve's interest rate decision: The dissenters disappeared
Summary
- The Federal Reserve raised its key interest rate to 3.75%-4.0%, marking the first increase since 2023, with a unanimous decision from the central bank.
- Interest rate estimates suggest one more 25 basis point hike for the current year, aligning with market expectations, supported by upward revisions in economic growth and inflation estimates.
- US economic growth remains robust, contributing to higher inflation forecasts, with current year inflation now projected to be 1 percentage point higher than previous estimates due to rising energy prices.
- The FOMC's long-term policy rate estimate increased to 3.2%, indicating a gradual rise in the equilibrium rate and suggesting the US economy can sustain higher interest rates.
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Automatic translation: Originally published in Finnish 16/09/2026, 19:02 GMT. Give feedback here.
As for the decision itself, the Federal Reserve's interest rate decision on Wednesday was expected, as the central bank raised its key interest rate for the first time since 2023, now to 3.75%-4.0%. At the same time, economic and interest rate estimates were updated in a slightly more hawkish direction. The central bank was finally unanimous in its decision, meaning the dissenters disappeared from the meeting table.
Fed: Policy rate and balance sheet
Source: LSEG
Interest rate estimates project one more 25 basis point hike for the current year, which is fairly well in line with market probabilities seen before the meeting. A clear majority of the FOMC members were in favor of this single hike, while four members estimated in favor of two hikes and only two members still in favor of a rate cut. The revisions to interest rate estimates are supported by economic growth and inflation estimates, both of which were fine-tuned upward.
Clearly, US economic growth remains strong, which in addition to energy prices also supports inflation. Especially in forecasting inflation, the central bank has had to significantly change its stance, as inflation for the current year is now estimated to be 1 percentage point faster than seen in estimates from half a year ago. This is partly driven by a clear rise in energy prices.
Fed's long-term interest rate estimates and the 30-year bond yield
Source: LSEG
It is also interesting that the FOMC's long-term estimate for the policy rate was once again edged upward to 3.2%. It is noteworthy that the interest rate estimate has risen by almost a percentage point in just a few years. This can be interpreted as the estimate of the so-called equilibrium rate having gradually risen within the central bank. This further proves that the US economy is increasingly in an environment of higher interest rates – and is able to sustain it.
