The Federal Reserve raised its benchmark interest rate by 0.25 percentage points on a unanimous vote, the first increase in 3 years and 2 months. The move lifted the policy rate target range from 3.5% to 3.75% to 3.75% to 4%.
At its regular Federal Open Market Committee meeting, the Fed said 16 members expected one more rate increase this year, while two expected no change. Chair Kevin Warsh does not submit a forecast in the dot plot. Nearly half of the committee members projected one more increase next year, while six expected rates to hold steady and four projected cuts in 2027, including one member who saw rates falling to 3.25%.
The Fed also raised its estimate of the longer-run neutral rate to 3.2% from 3.1% in June. It forecast faster growth, with the economy expected to expand 2.3% this year and 2.4% next year, both up 0.1 percentage point from June, and said economic activity is expanding at a solid pace.
The central bank kept its unemployment forecast at 4.1% for this year and said the labor market should remain at that level as labor supply grows. It also said inflation remains elevated, lifting its median PCE inflation forecast for this year to 3.7% from 3.6%, with core PCE expected to rise 3.4% this year and 2.5% next year. The Fed pushed back its 2% inflation target by two years.
