The Federal Reserve Hikes Interest Rates
16th September 2026
Today, in defiance of President Donald Trump’s call for lower interest rates, and for the first time since 2023, the Federal Reserve’s FOMC (Federal Open Market Committee) raised interest rates by 25 basis points to a range of 3.75% – 4.00%. Experts and financial markets predicted the rate rise as Federal Reserve Chairman Kevin Warsh tries to head-off increasing inflation due to the Middle East war between the United States and Iran. This has pushed the price of the Benchmark Brent crude oil higher and higher, where it currently sits trading at circa $105.45 p/bl (per barrel), having already pushed through $108 p/bl earlier in the day.
After the rate increase announcement, officials of the FOMC advised that the rise “will support a timelier return” to the Federal Reserve’s inflation benchmark target of 2.00%. Whilst this target has not been reached for around 5 ½ years, the officials added “the committee will deliver price stability”, all of which was reiterated by Chairman Warsh at a press conference post FOMC meeting. The decision by the FOMC to raise rates was approved unanimously by twelve votes to zero, and the FOMC indicated that another rate rise was on the cards due to persistently high inflation – with indications suggesting the target figure of 2.00% will not be reached until 2029.
After the meeting, Chairman Warsh acknowledged previous concerns regarding inflation commenting that too many categories of products and services were showing annualised price gains above 3.00% on a six and twelve-month basis. He went on to say that, “we removed a dose of accommodation so that financial and credit conditions would be more consistent with our ultimate objectives. This summer’s inflation readings do not tell me that underlying trends have meaningfully improved”. Data provided by the BLS (Bureau of Labour Statistics) revealed core inflation rose at a higher-than-expected rate in August. This was a major factor in the decision to raise interest rates, reflecting broader concerns that inflationary pressures are spreading beyond the Middle East war, surging energy prices, and the temporary effects of tariffs.
On the future of interest rates, projections released today by the Federal Reserve shows sixteen officials advancing the possibility of a further rate rise before close of business 31st December 2026, with the median projection for 2027 pointing to no additional rate increases for 2027. However, eight policymakers suggested no further increases in rates for this year, but projected a 0.25% increase in 2027 to a range of 4.00% – 4.25% by the end of year 2027. Interestingly, the rate rise was in defiance of Donald Trump’s wishes to have the lowest borrowing cost in the world, and it should be remembered that Chairman Warsh is the President’s pick, and when the previous Chairman Jerome Powell defied the President on interest rates, he suffered a series of highly personal attacks.
Analysts advise that financial markets in a hawkish shift anticipate a further 25 basis point increase in interest rates before the end of the current year and have priced in a 57.40% probability. The surge in bet rate hikes across money markets is being fueled by what experts describe as a mix of persistent macroeconomic factors and official central bank projections. As the Middle East conflict continues unabated with no end in sight, and with the Saudi East West pipe line (avoids the Strait of Hormuz) now closed, the potential for inflationary increases in the coming months is ever present and the markets could see more hawkish bets regarding rate increases before the end of the year.
