FX.co ★ Fed Set to Raise Rates for 1st Time Since 2023

The Federal Reserve is expected to raise the target range for the federal funds rate by 25 bps to 3.75%–4.00% in September 2026, marking the first rate increase since 2023. The move comes as inflation remains well above target and the energy shock from the war with Iran continues to weigh on the economic outlook. US headline inflation held at 3.4% year-on-year in August, while core inflation stood at 2.4%. At the same time, diesel prices have climbed to $6 per gallon, adding further upward pressure on inflation as prospects for an end to the conflict grow increasingly remote. In his Jackson Hole speech last month, Chair Warsh warned that if the Fed were not confident that underlying inflation was on a declining path, it would still have “work to do.” Policymakers will also release updated economic projections. In June, the so-called dot plot showed that nine officials expected at least one rate hike this year, while six anticipated at least two. Chair Warsh did not submit a forecast at that time.