Fed Raises Rates for First Time in Three Years, Warsh Says 'The Problem Is Inflation': Market Bets on Three More Hikes Next Year

BlockBeats news, September 17 — The Federal Reserve's FOMC unanimously decided to raise interest rates by 25 basis points, lifting the federal funds rate target range to 3.75%–4%, the first rate hike since July 2023. The latest dot plot shows that 16 officials expect at least one more rate hike in 2026, with the median rate projections for both 2027 and 2026 at 4.1%.

Fed Chair Warsh said recent data shows the U.S. economy is performing strongly and the labor market remains resilient, but inflation is too high and has persisted too long, and the FOMC is not currently confident that inflation is moving toward the 2% target. He said the main problem in the current economy is not growth, but inflation.

Warsh also said the rise in U.S. Treasury yields is mainly driven by three factors: a strong U.S. economy, intensified capital competition, and geopolitical factors. He did not directly mention the U.S.-Iran conflict, but previously said geopolitical changes have prompted the Fed to reassess the economic outlook.

Markets quickly shifted to more hawkish pricing. From the announcement of the decision through Warsh's press conference, spot gold fell by about $100 at one point, the dollar index rose by about 40 points and broke through the 100 mark, the 2-year Treasury yield rose by about 10 basis points, the 10-year rose by about 5 basis points, and U.S. stocks turned lower across the board.

Interest rate futures currently price in about 33 basis points of additional rate hikes this year, up about 6 basis points from before the meeting, and expect a cumulative additional 75 basis points of rate hikes through June next year, equivalent to three 25-basis-point increases.