The Fed pivots to hiking. Its first increase since 2023.
On September 16, the Fed raised its policy rate by 0.25% to 3.75–4.00%. It is the first hike since 2023. The vote was a unanimous 12–0: the hike that 3 officials called for in July became the whole committee's consensus this time. The dot plot also signals one more hike within the year. We break it down in charts.
First since 2023 · unanimous
First hike since 2023 — decided unanimously
At the September 16 FOMC meeting, the Fed raised the fed funds target range by 0.25%, to 3.75–4.00%. It is the first hike since July 2023, roughly three years. Ending the hold that had run since January, monetary policy has pivoted toward tightening. The vote was unanimous, 12–0.
In July, 3 Reserve Bank presidents had dissented in favor of a hike, but this time every member backed the increase. Under Chair Warsh, the statement was concise, saying inflation "remains elevated," and explained that the hike is meant to return inflation to the 2% target more promptly. Upside price pressure from Middle East developments and high energy costs finally pushed the committee toward a hike.
The 5.375% peak, the descent, and the renewed climb
Against post-pandemic inflation, the Fed hiked at a record pace from 2022. The fed funds rate peaked in July 2023 at 5.25–5.50% (median 5.375%, a 22-year high). It then began cutting in September 2024, falling to 3.50–3.75% by December 2025. But with inflation staying elevated, the Fed halted cuts and reversed higher in September to 3.875% — its first hike in about three years.
In barely a year and a half the rate raced from near zero to above 5%, then came back down to 3.625% — and here it has turned upward again. The last cut was December 2025. After about nine months of holding steady, the direction has shifted from "cutting" to "hiking." The 2026 rate cuts markets had initially penciled in never materialized, and the phase has changed from "higher for longer" to "hikes resuming."
Why the hike — inflation stays elevated
The trigger was persistently high inflation. August CPI (consumer prices) held at a high +3.4% year over year, and gasoline surged +27.4% year over year. High energy costs tied to Middle East developments keep pushing prices up. Meanwhile, core CPI has eased to +2.4% (the lowest since March 2021), marking the price pressure as strongly "energy-driven."
The Fed moved to hike even as core settled in order to preempt the "second-round effects" by which high energy costs feed through to wages and other prices. In the SEP released alongside, the 2026 PCE inflation projection was raised to 3.7% and core PCE to 3.4%. The premise that prices will run hotter than assumed led to the unanimous hike.
September's dots point to "one more hike"
At four meetings a year, the FOMC publishes the dot plot, which shows each member's rate outlook as a dot, along with the economic projections (SEP). September's updated dots are clearly hawkish, with 16 of 18 officials expecting a further hike within the year (4 of them two). The end-2026 median is about 4.1%, a level that prices in one more hike on top of this one.
The hawkish momentum that showed up as 3 dissenting votes in July crystallized in September into a unanimous hike plus hawkish dots. The end-2027 median is also elevated at 4.1%, signaling a restrictive level for some time. The dots next update at the December meeting. Whether there is one more hike within the year is the biggest question.
Who decides? — the FOMC's "12 votes"
Monetary policy is set at the FOMC (Federal Open Market Committee), which meets eight times a year. 12 members hold votes — Washington's 7 Governors, the New York Fed President (permanent), and 4 of the remaining 11 Reserve Bank presidents on rotation. Decisions are by majority, and in recent years dissents have been notable.
Tracing the votes, the tally moved from April 8–4 → June 12–0 → July 9–3 → September 12–0 (unanimous hike). In September the whole committee moved toward the position of the 3 who dissented against holding in July and called for a hike (Hammack, Kashkari, Logan). The disagreement over holding was resolved, at least for now, under the conclusion to hike.
2026 FOMC calendar
The FOMC meets eight times a year, and the March, June, September, and December meetings publish the economic projections (SEP) and the dot plot. With this meeting behind us, the next is October 27–28.
Decisions are announced at 2:00 p.m. U.S. Eastern time, followed 30 minutes later by the Chair's press conference. This time a new SEP (dot plot) was also released, signaling one more hike within the year. If inflation stays elevated, whether the Fed goes for an additional hike in October or December is the biggest question.
Impact on FX and markets, plus a mini glossary
The dollar is the world's key currency. The Fed's rate moves currencies, bonds, and equities worldwide. If U.S. rates stay high, a strong-dollar, weak-yen backdrop tends to persist, forming an important backdrop for the dollar-yen rate. Surveying the rate gaps across the U.S., Europe, and Japan reveals the "divergence" in global monetary policy.