- Decision
- Raise
- Rate change
- 25 bps
- federal funds rate
- 3.75%
The Federal Open Market Committee (FOMC) of the Federal Reserve unanimously raised the federal funds target range by 25 basis points to 3.75%-4.00%, saying inflation remained elevated and tighter policy would support a timelier return to its 2% goal while economic activity expanded at a solid pace. Over the past year, the FOMC cut the range by 25 basis points in September, October and December 2025, from 4.00%-4.25% to 3.50%-3.75%, then held it through July 2026. The Federal Reserve will continue maintaining ample reserves in the banking system. Median participant projections put 2026 personal consumption expenditures inflation at 3.7% and real gross domestic product growth at 2.3%, while job gains have kept pace with the workforce and unemployment has changed little. Uncertainty remains elevated partly because of geopolitical developments, although domestic spending has been resilient, productivity growth strong and capital investment robust. The median projected appropriate federal funds rate was 4.1% at end-2026 and end-2027.
Rate evolution
From June 2025 to September 2026, the Federal Reserve lowered the target range for the federal funds rate by a net 50 basis points, from 4-1/4 to 4-1/2 percent to 3-3/4 to 4 percent, after holding steady through mid-2025, cutting over September to December, pausing through July 2026 and raising the range in September. The initial holds reflected activity that was still expanding, a low unemployment rate and solid labor market conditions, alongside inflation that remained somewhat elevated, while uncertainty had diminished somewhat in June but was still elevated and risks were seen on both sides of the dual mandate. Cuts began as growth moderated, job gains slowed, unemployment edged up and the Committee judged downside risks to employment had risen, even though inflation had moved up and remained somewhat elevated, with the late-2025 easing accompanied by dissents both for larger cuts and for no change.
The Committee kept the federal funds rate unchanged in April, June and July 2026 as activity expanded at a solid pace, unemployment changed little and inflation remained elevated. April cited higher global energy prices, while June and July pointed to supply shocks that drove price increases in certain sectors, including energy, and highlighted strong productivity growth, capital investment and job gains that kept pace with the workforce, while linking elevated uncertainty in part to the conflict in the Middle East. After three members dissented in July in favor of a 1/4 percentage point increase, the Committee unanimously raised the target range by that amount on September 16, citing resilient domestic spending, strong productivity growth, robust capital investment and elevated inflation, and said the action would support a timelier return to its 2 percent goal.