The Federal Reserve raised rates in September, marking the first time it has done so since 2023. With the quarter-point hike, the central bank’s benchmark overnight borrowing rate now sits in the range of 3.75% to 4.00%.
The decision, which was unanimously supported by the committee, comes as part of its effort to fight persistently high inflation, which the war with Iran continues to fuel. It is also, notably, done in defiance of President Trump, who has repeatedly called on the Fed to lower interest rates.
What will the Fed do next?
The Fed indicated in its quarterly projections that it anticipates raising rates again later this year. Beyond that next increase, though, the Fed’s “move doesn’t appear to signal the start of an aggressive rate-hiking campaign,” said CBS News. Fed Chairman Kevin Warsh said Wednesday that “policymakers expect to hold rates steady throughout 2027.”
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This could very well change, however, given the level of economic uncertainty and just how sticky inflation has been. “The plain fact is that inflation is too high and has been for too long,” Warsh said at a news conference following September’s meeting. He emphasized that the committee “must be confident that underlying inflation is moving to our objective, clearly and at sufficient speed,” and at this point, it “decided that this standard has not been satisfied.”
Despite being Trump-nominated, Warsh seems unmoved by Trump’s pressure to move rates downward, despite economic conditions. “When asked Wednesday how the president might react to the rate increase, Warsh said, ‘I’ve got nothing for you on a discussion with the president,’” said The Associated Press.
Hours after the September meeting wrapped, Trump demanded that the Federal Reserve “slash interest rates to 1% or less.”
When is the next interest rate decision?
The Federal Reserve will next meet Oct. 27-28. The Fed has just one more meeting for the year besides that one, in December, and policymakers have “signaled one more interest rate hike could come before the end of the year,” said NBC News.
How do interest rates affect the economy?
The Fed uses interest rates to either stimulate or rein in economic activity. Generally, the theory is that “cutting rates decreases borrowing costs, prompting businesses to take out loans to hire more people and expand production,” which “in turn, stimulates economic activity and growth,” said Investopedia. “Conversely, when the economy is overheating, the Fed may raise rates to cool things down and prevent inflation from spiraling out of control.”
What do rate changes mean for your wallet?
Beyond broader economic implications, the Federal Reserve’s decisions also hold significance for your finances.
When rates are cut, that provides “some welcome relief for consumers who are in the market for a home or auto purchase, as well as for those carrying pricey credit card debt,” said CBS News, by lowering interest rates on those products. On the other hand, rate cuts “could also have a downside of shaving the relatively high returns recently enjoyed by savers.”
Meanwhile, when the Fed decides to raise rates, it usually has the inverse effect, in that it will typically lead interest rates on credit cards, auto loans and variable rate mortgages to go up. The good news with rate hikes, though, is that “savings accounts tend to earn more interest,” said LendingTree.
