“Higher for Longer” is Back
The Federal Reserve raised its short-term interest rate target by 25 basis points at the conclusion of its September 15-16 meeting. This marked the first increase since 2023 and brought the federal funds target range to between 3.75 and 4 percent. All 12 FOMC members voted in favor of the hike.
Fed Chairman Kevin Warsh stated that inflation is too high and is not returning to its 2 percent target quickly enough. The decision signals that the Fed believes the renewed inflationary environment is a greater risk to the economy than slowing growth. Indeed, the Fed’s quarterly Summary of Economic Projections (SEP), released in tandem with the rate decision, anticipates healthy economic growth and labor market conditions over the next few years as inflation continues to exceed its target.
The SEP projections also imply that an additional 25 basis point rate hike is in the cards before year-end. Financial markets agree and are pricing in just such an increase, in addition to two more in 2027. All indications are that the easing cycle that began in 2024 has ended, and a return to a loosening bias, which was widely expected earlier this year, is unlikely any time soon unless inflation improves substantially.
From a consumer credit perspective, the bigger issue is less the Fed’s latest move but rather an upward trend in long-term interest rates, which are largely beyond the Fed’s control. Higher long-term rates mean higher lender funding costs and mortgage, auto and personal loan payments for consumers.
September 17th, 2026
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