Fed Raises Interest Rates for First Time Since 2023 as Warsh Moves to Tame Inflation

WASHINGTON -- The Federal Reserve raised interest rates Wednesday for the first time since July 2023, moving to restrain inflation that has stayed well above the central bank's 2% target even as policymakers weigh a slowing global economy and elevated energy costs.

The Federal Open Market Committee voted to increase the federal funds rate by a quarter percentage point, bringing the target range to 3.75%-4.00%. The decision came at the conclusion of the panel's two-day September meeting.

Chair Kevin Warsh had signaled the move weeks in advance. In his keynote address at the Fed's annual Jackson Hole symposium in late August, Warsh said the central bank could not afford to stand still. According to a report reviewed by CNBC, he told the audience the Fed "must be confident that underlying inflation is moving to our objective, clearly and at sufficient speed" -- and that without that confidence, "we have work to do."

Markets had largely priced in the outcome. According to CME Group's FedWatch tool, futures traders were assigning roughly a 93% probability of a quarter-point increase heading into Wednesday's announcement, per live commentary tracked by Kiplinger. An 85% majority of economists in a Reuters survey conducted after last Friday's inflation release -- 86 of 101 respondents -- had forecast the hike, the first since July 2023.

The data backing Wednesday's move was not ambiguous. August consumer prices rose 0.4% month over month, holding the year-over-year rate at 3.4%, with core measures remaining elevated well above the Fed's target, driven by higher energy prices and persistent supply pressures, according to Polymarket's pre-meeting data summary. Oil has traded solidly above $100 per barrel, and the August payrolls report showed the economy added three times as many jobs as analysts had expected, according to Yahoo Finance's live coverage of the meeting.

Warsh's approach has unsettled some on Wall Street. A new regime of no forward rate guidance under the chair had left many economists reluctant to commit publicly until the August inflation numbers landed, Yahoo Finance noted. Bank of America economist Aditya Bhave said in a note reviewed by CNBC that Warsh's Jackson Hole speech showed markets "a more credible Fed" and that "the onus is now on Warsh to deliver a hike" absent a material downside surprise.

Deutsche Bank economists told Kiplinger they would be watching how Warsh and the updated Summary of Economic Projections "frame the tightening cycle." The bank did not expect forward guidance but anticipated revisions pointing toward a slightly stronger economic outlook, and said the median dot should show at least one more rate increase this year.

The rate move lands as Congress has already resolved one near-term fiscal threat. President Trump signed a continuing resolution into law on Sept. 1 that funds the federal government through Dec. 11, averting a shutdown at the Oct. 1 start of fiscal year 2027, according to the Committee for a Responsible Federal Budget. The House passed the measure 370-48 and the Senate cleared it 90-6. Full-year FY27 appropriations remain unfinished, with the Senate Appropriations Committee yet to mark up a single spending bill, setting up another deadline fight after November's midterm elections.

The Fed's next scheduled meeting runs in early November. Warsh has not committed publicly to additional moves, but the updated dot plot released Wednesday is expected to show whether officials see this hike as a one-time correction or the opening of a new tightening cycle.

Sources cited:
- Kiplinger (live Fed meeting updates) (https://www.kiplinger.com/investing/live/fed-meeting-updates-and-commentary-september-2026)
- CNBC (September Fed decision odds, Warsh Jackson Hole) (https://www.cnbc.com/2026/08/28/-september-fed-decision-now-a-coin-flip-as-rate-hike-odds-increase.html)
- CNBC (markets see Warsh endorsing September hike) (https://www.cnbc.com/2026/08/31/markets-see-warsh-endorsing-a-rate-hike-in-september-not-everyone-is-convinced.html)
- Yahoo Finance (Fed meeting live updates) (https://finance.yahoo.com/economy/policy/live/federal-reserve-meeting-live-updates-chairman-kevin-warsh-143452661.html)
- Polymarket (Fed Decision September 2026) (https://polymarket.com/event/fed-decision-in-september-762)
- Committee for a Responsible Federal Budget (Appropriations Watch FY2027) (https://www.crfb.org/blogs/appropriations-watch-fy-2027)