NEW YORK, Sept 16 (Reuters) - The Federal Reserve raised interest rates on Wednesday and flagged further increases in borrowing costs in coming months, with new U.S. central bank chief Kevin Warsh joining a unanimous decision that effectively acknowledges the Trump administration's inability so far to control inflation.
Speaking in Washington after the decision's release, Warsh echoed the official statement in promising the Fed's policy committee would "deliver price stability."
New policy projections
showed 16 of 18 policymakers anticipate at least one more quarter-percentage-point hike by the end of this year, with only two of them seeing rates remaining stable from here. Warsh apparently again did not submit a rate projection.
It's the first policy shift under the new Fed chief, who took office in late May after being selected by Trump with an expectation that he would cut rates.
The Fed's new policy statement and economic projections, to the contrary, show a central bank opening the door on tighter monetary policy through next year, with the policy rate rising to the 4.00%-4.25% range by the end of this year and ending 2027 at the same level.
REACTION:
STOCKS: Major US indexes turned lower as Warsh's comments came to an end, with the S&P 500 down 0.4% and the Nasdaq down fractionally. Both indexes were modestly higher earlier.
BONDS: US Treasury securities were mixed. The 2-year yield, most sensitive to expectations for future Fed policy, rose 6 basis points to 4.725% after earlier declining. The 10-year yield was up 1 bps at 5% and the 30-year yield was down 1.6 bps at 5.347%.
FOREX: The US dollar index rose 0.5% to 100.25.
COMMENTS:
MICHAEL GAPEN, CHIEF US ECONOMIST, MORGAN STANLEY, NEW YORK:
“The Fed raised the policy rate by 25bp to a target range of 3.75% - 4.0%. The dot plot showed a median of one additional hike this year, no change in 2027, and one cut in 2028. The addition of 'Today's policy action will support a timelier return' in the statement signals to us that the Fed acknowledges recent disinflation but would like to speed up the process. In the SEP, the inflation forecasts for this year and 2028 were each revised up a tenth, but the forecasts show the Fed still believes inflation will come down next year, it will just take a higher policy rate to get there.”
BRAD CONGER, CHIEF INVESTMENT OFFICER, HIRTLE & CO., BRYN MAWR, PENNSYLVANIA:“Today’s FOMC could mark the moment when the FOMC regained a measure of spine. There were many arguments for standing still. But for once, the committee sided with main street.
"Inflation is a pervasive concern, and its uncertainty is impeding decision making among all businesses. One swallow doesn’t make a spring, but we might have just caught a glimpse of Volckerian decisiveness as opposed to the eternal sycophancy of the Powell era.”
PHIL BLANCATO, CHIEF MARKET STRATEGIST, OSAIC, NEW YORK:
“The Federal Reserve decided to hike interest rates by 25 bps at their September meeting. The 25 bp hike itself was largely priced in, so the bigger driver of the market reaction will be what the Fed signals about the path forward.
“The decision was unanimous, with all 12 committee members voting for a 25-basis-point hike, showing greater alignment within the Fed than we saw earlier this year.”
KAREN MANNA, FIXED INCOME STRATEGIST, FEDERATED HERMES, PITTSBURGH:
"The Fed raised rates today, but the bond market got there first. The move confirms policymakers remain concerned about inflation, but the vote tells us that the committee shares Chair Warsh’s urgency. Treasury yields have already moved sharply higher as investors repriced inflation risk and higher-for-longer rates. In many ways, the bond market has been leading the Fed rather than the other way around. That makes today’s 25 basis points less important than what comes next. Much of the tightening risk is already priced in but the bigger signal is whether the Fed believes this is enough or the beginning of more to come."
JEFFREY ROACH, CHIEF ECONOMIST, LPL FINANCIAL, CHARLOTTE, NORTH CAROLINA:“Chairman Warsh and the rest of the committee are building a strong reputation through their laser focus on defeating inflation. Hawkish overtones are throughout the latest Summary of Economic Projections. Given the current economic circumstances, the committee delivered what was needed, and markets are handling it remarkably well. Going forward, the inflation debate will likely center on the magnitude of improvement as geopolitical conflicts wane.”
JUAN PEREZ, DIRECTOR OF TRADING, MONEX, WASHINGTON, D.C.:
"The number one thing that surprises us from the decision has to be the unanimous vote to actually hike by 25 basis points. So we are taking this as a very hawkish approach by the Federal Reserve.
"The message that it seems to be sending by increasing interest rates without anyone opposing to it is that they're willing to do this one more time, and very likely in December if they get more evidence of inflationary pressures for the remainder of the year."
DANIEL SILUK, HEAD OF GLOBAL SHORT DURATION & LIQUIDITY, JANUS HENDERSON INVESTORS, NEWPORT BEACH, CALIFORNIA:“The Federal Reserve delivered the widely anticipated 25bp rate hike, lifting the fed funds target range to 3.75%-4.00%. More importantly, policymakers used both the statement and updated projections to reinforce the message that inflation remains the central concern and that today's move is unlikely to be viewed as a standalone adjustment. The decision was unanimous, removing what many expected would be at least a handful of dovish dissents and presenting a more unified Committee than markets had anticipated.
"The statement itself was subtly but meaningfully hawkish. Policymakers upgraded their description of the economy, noting that domestic spending has been resilient, productivity growth is strong and capital investment remains robust, while explicitly stating that today's action will support a "timelier return" of inflation to the 2% target. Notably, the Committee removed references to inflation being driven by supply shocks, suggesting policymakers are increasingly focused on broader and more persistent inflation pressures rather than viewing recent price increases as largely transitory or externally driven."
JP POWERS, CHIEF INVESTMENT OFFICER, RWA WEALTH PARTNERS, BOSTON:
"I'm looking at the two-year here, though, and that was the first reaction, but now it's coming back up higher here. So, maybe it helps the long end a little bit, but the front end's still worried about another hike later this year, and then who knows what for 2027.
"This statement, they're shorter than I think they've ever been, but just the final line, the committee will deliver price stability - period. Clearly, they want to make sure that the markets know that they're here and that's job number one. And the job market seems to be in a good place, and they're really trying to navigate how much of this inflation could go away if we get some resolution with the conflict in Iran. And I think the core inflation numbers are still just too high for anybody's comfort, and so they've got to take action here. But it'll be interesting to see.
"So we're getting these forecasts, people thinking now we'll get another one by the end of the year. But I do think this is probably a Fed that is now meeting to meeting versus some of the prior regimes where it was a little bit more forecasted and you'd get one move and you'd sort of know, all right, so this is a trend now that we should expect the next few meetings to maybe adopt. And I'm not sure that that's going to be how this one operates."
DAVID KRAKAUER, VICE PRESIDENT OF PORTFOLIO MANAGEMENT, MERCER ADVISORS, SAN DIEGO, CALIFORNIA:
“The shift from a 9-3 hold in July to a unanimous 12-0 hike today is the real story. That kind of consensus, with every member of the committee aligned behind tightening, doesn't happen without conviction. This isn't a divided Fed feeling its way through uncertainty. It's a unified committee sending a clear, collective message that inflation is an ongoing issue, backed by oil above $100, diesel at a record $6.23, and a stronger August jobs report.
“A unanimous hike materially raises the probability of another move before year-end, and investors positioned for the easing cycle of early 2026 need to fully recalibrate. That said, the most important message remains: focus on what you can control, your asset allocation, your time horizon, your spending, and not what you can't. A clear, unified Fed is actually easier to plan around than a divided, unpredictable one.”
MATTHIAS SCHEIBER, HEAD OF THE MULTI-ASSET TEAM AT ALLSPRING GLOBAL INVESTMENTS, LONDON:
"This increase in the federal funds rate was well telegraphed and, some may argue, largely driven by the bond market. With yields across the curve at cycle highs, the benchmark U.S. 10-year Treasury yield recently reached 5.0%, and the yield curve has steepened meaningfully. Higher front-end rates will do little to address supply-driven inflation fears, as was the case during the 2022 tightening cycle. That said, the U.S. economy is currently well positioned to absorb higher short-term rates, and the rate hike may lend the FOMC some additional credibility. Changes are underway at the Fed, and the use of market pricing to help guide policy is likely to be welcomed, despite pressures on policymakers to the contrary.
"Looking ahead we expect volatility in government bond yields to increase as the path of yields becomes increasingly data dependent. The level of real yield on offer appears attractive today, particularly in the 'belly' of the curve, or the 5- to 10-year segment. Absent a slowdown in economic growth, we believe yields could continue to move higher."
STEVE SOSNICK, CHIEF STRATEGIST AT INTERACTIVE BROKERS, NEW CANAAN, CONNECTICUT:
"The decision was unanimous, which tells us the Fed is on board with this approach. Policymakers are signaling they will do what's required to move inflation back toward 2%, and if that means further rate hikes, the market appears generally comfortable with that.
"There had been some concern that Warsh was talking a lot about inflation but might not be prepared to act. Today's decision addresses that concern. His Fed has now taken action.
"Looking ahead, inflation would likely have to slow more quickly than expected for the Fed not to raise rates again. With markets already pricing in another hike, particularly in December, a meaningful improvement in inflation could persuade policymakers to hold off. Otherwise, further tightening remains the likely path."
RYAN DETRICK, CHIEF MARKET STRATEGIST, CARSON GROUP, OMAHA, NEBRASKA:
"As widely expected, the Fed hiked interest rates for the first time in more than three years. After the hawkish comments from Warsh a couple of weeks ago in Jackson Hole, he kind of backed himself into the corner a little bit.
"The fact that it was unanimous is a tad surprising. At the same time, it really shows that the Fed is serious about combating the broadening inflation backdrop that we're seeing.”
CHRISTOPHER HODGE, CHIEF US ECONOMIST, NATIXIS, NEW YORK:
"Today’s decision was the path of least resistance. Staying on hold would further risk credibility and 50 might be overkill and tie the Fed’s hands in the coming months. This move will do very little to actually address inflation, but it will buy the FOMC time to see if the higher than expected print in August was just a bump in the road or something more worrisome.
"We think its possible this is a one off, which would be unusual, but hiking into disinflation is itself unusual. Because it is hard to string together several encouraging inflation prints, we will pencil in another hike in December, but this could be one and done. We don’t think policymakers will think more than a nudge would be needed to help the disinflationary process, but incoming inflation prints will continue to be decisive."
KARL SCHAMOTTA, CHIEF MARKET STRATEGIST, CORPAY, TORONTO:
"Today’s decisive hike—supported by all FOMC members and paired with an upgrade in the 'dot plot' summary of economic projections—should go a long way toward restoring confidence in the Fed’s commitment to fighting inflation, and help remove a major headwind keeping the dollar restrained."
KAY HAIGH, GLOBAL HEAD AND CIO OF FIXED INCOME AND LIQUIDITY SOLUTIONS, GOLDMAN SACHS ASSET MANAGEMENT, NEW YORK:
“The Fed has signaled it does not at this stage envisage an aggressive tightening cycle. Most FOMC members see a total of two hikes this year per the SEP, and it will likely skip October’s meeting given its proximity to the midterm elections. One more hike this year in December is our base case, although this remains contingent on upcoming CPI reports and the path of energy prices.”
MICHELE RANERI, VICE PRESIDENT AND HEAD OF U.S. RESEARCH AND CONSULTING, TRANSUNION, CHICAGO:
“The Federal Reserve's decision today to raise interest rates by a quarter percentage point reflects its continued focus on addressing persistent inflation. While inflation has moderated from peak levels, it has remained elevated enough to prompt additional action from the Federal Open Market Committee. At the same time, labor market conditions have remained relatively resilient with unemployment rates holding steady in recent months, providing the Fed the confidence to raise rates at this time."
BRIAN JACOBSEN, CHIEF ECONOMIST, ANNEX WEALTH MANAGEMENT, MENOMONEE FALLS, WISCONSIN:
"Is this more like 1994 or 1997? In 1994, the Fed embarked on an aggressive sequence of hikes. In 1997, it hiked once and was done. Given the language about this being a way to support a 'timelier return' to the Fed’s target, I wouldn’t bank on another hike this year. Yes, the median dot shows another hike this year, but a lot can change between now and then.
"Warsh not only read the markets, but he read the room, supporting a rate hike. That’s why we can get a relatively muted response from the markets despite the change in course."
(Reporting by Howard Schneider, Saeed Azhar, Chuck Mikolajczak, Saqib Ahmed, Tharuniyaa Lakshmi, Stephen Culp, Laura Matthews, Suzanne McGee, Ragini Mathur, Anirban Sen; editing by Colin Barr)
