Fed signals another rate hike this year after raising rates

The Federal Open Market Committee raised the target range for the federal funds rate by 25 basis points to between 3.75% and 4% on Wednesday, marking the first increase in more than three years, while updated projections signaled another hike remains likely before year-end. Policymakers' median forecast for the federal funds rate reached 4.1% for the end of 2026, corresponding to a target range of 4% to 4.25%, according to the projections released after the meeting. Twelve of the 18 officials who submitted projections anticipated the rate would reach 4.125% by year's end, while four projected 4.375% and two saw no additional moves beyond Wednesday's action.

Hawkish shift from June

The outlook represented a markedly more hawkish stance than the Fed's June projections, which had pointed to a median policy rate of 3.8% by year-end. Fed-funds futures were pricing in roughly 1.9 quarter-point increases during 2026 in total prior to the announcement, suggesting traders had already anticipated nearly one additional hike. The projections showed the median policy rate remaining at 4.1% in 2027 before declining to 3.9% in 2028 and 3.6% in 2029, with the longer-run estimate rising slightly to 3.2% from 3.1%. The Federal Reserve said inflation remained elevated and noted that Wednesday's increase would support a "timelier return" to its 2% target.