At the September 2026 FOMC meeting, the Federal Reserve raised the federal funds target range by a quarter point to 3.75% to 4.00%, its first increase of the cycle, by a unanimous 12 to 0 vote on September 16, 2026 [1]. The statement said the move would support a timelier return to the 2% inflation goal [1]. The accompanying projections show the median official expects the rate to end 2026 at 4.1% and to stay there through 2027, with 16 of 18 participants placing the year-end rate at 4.125% or higher [2]. The decision reverses the easing of late 2025 and tells investors the Fed will accept slower growth to bring inflation down.
What the September 2026 FOMC meeting decided
The committee lifted the target range from 3.50% to 3.75% to 3.75% to 4.00% [1]. The vote had no dissents, which is notable because the July decision to hold had drawn three dissents in favor of a hike; by September the whole committee agreed [1]. The statement described economic activity as expanding at a solid pace, domestic spending as resilient, productivity growth and capital investment as strong, and job gains as keeping pace with the workforce [1]. Inflation was described as elevated [1]. The Fed also confirmed it would keep ample reserves in the banking system, so the balance sheet is not part of the tightening [1].
The August CPI that sealed the decision
Five days before the meeting, the August CPI report showed consumer prices rising 0.4% in the month and 3.4% over the year, with core CPI up 0.3% and 2.4% [3]. Energy rose 2.1% and gasoline 3.9%, accounting for more than a third of the monthly increase, and gasoline was up 27.4% over twelve months [3]. Shelter rose 0.3%, faster than the 0.1% gains of June and July [3]. Communication prices rose 2.3% and airline fares 2.7% [3]. The 0.4% headline gain and the reacceleration in shelter ended the two-month stretch of soft readings that had supported the case for holding.
The September dot plot and economic projections
The Summary of Economic Projections shows a committee that expects to hold the new range for more than a year. The median federal funds rate projection is 4.1% for the end of 2026, 4.1% for 2027, 3.9% for 2028, 3.6% for 2029 and 3.2% in the longer run [2]. In June the medians had been 3.8%, 3.6% and 3.4% for 2026 through 2028, so every year moved higher [2].
The distribution for end-2026 is tight: 12 participants at 4.125%, the midpoint of the new range, 4 at 4.375% and 2 at 3.875% [2]. No participant projects a cut this year, and four see one more hike [2]. In June, eight participants had been at 3.625% and only one at 4.5%, so the center of the committee moved up by two quarter-point steps in three months [2].
| Median projection | 2026 | 2027 | 2028 | Longer run |
|---|---|---|---|---|
| Federal funds rate (September) | 4.1% | 4.1% | 3.9% | 3.2% |
| Federal funds rate (June) | 3.8% | 3.6% | 3.4% | 3.1% |
| PCE inflation (September) | 3.7% | 2.3% | 2.1% | 2.0% |
| Core PCE inflation (September) | 3.4% | 2.5% | 2.2% | n/a |
| Unemployment rate (September) | 4.1% | 4.1% | 4.1% | 4.2% |
| Real GDP growth (September) | 2.3% | 2.4% | 2.2% | 2.0% |
The economic projections are not those of a central bank expecting a recession. The median sees real GDP growth of 2.3% in 2026 and 2.4% in 2027, up from 2.2% and 2.3% in June, and unemployment at 4.1% through 2028, down from 4.3% in June [2]. PCE inflation is projected at 3.7% for 2026, falling to 2.3% in 2027 and 2.1% in 2028, with core at 3.4%, 2.5% and 2.2% [2]. The Fed is betting that a modestly higher rate, held for longer, will bring inflation to target by 2028 without pushing unemployment up.
How Treasury yields reacted to the hike
The move was largely priced in. The 2-year Treasury yield was 4.06% on September 15, 4.07% on September 16, the day of the decision, and 4.09% on September 17, according to the U.S. Treasury's daily par yield curve [4]. The 10-year yield, which had reached 5.00% on September 15, was 5.01% on September 16 and fell to 4.94% on September 17 before returning to 5.01% on September 18 [4]. The 30-year moved from 5.36% to 5.29% and back to 5.34% [4]. The long end fell on the day after the decision, which suggests bond investors read the hike as a credibility move that lowers long-term inflation risk.
DataPorium's federal funds series shows the effective rate at 3.63% in August 2026, so the September increase should lift it to about 3.88%, the level last seen in November 2025 [5]. Its CPI series puts the all-items index at 334.131 in August, up from 323.364 a year earlier [5]. Readers can track the funds rate, CPI and unemployment together on DataPorium's economic metrics page.
What a 4% policy rate means for investors
- Bonds: With the 2-year at 4.09% and the median dot at 4.1% for two years, the front end is priced for exactly what the Fed says it will do [2][4]. Investors may consider that the greater risk is at the long end, where a 10-year at 5.01% still leaves room for movement if inflation surprises in either direction.
- Stocks: The projections combine 2.3% to 2.4% growth with a 4% rate, which is a positive backdrop for earnings but a higher discount rate for valuations [2]. Companies with strong balance sheets and pricing power are best placed; rate-sensitive sectors such as housing and utilities face a longer wait for relief.
- Savers and borrowers: Money market and short Treasury yields near 4% now exceed core CPI of 2.4% by a wide margin [3][4]. Borrowers on variable rates face higher costs through at least 2027.
- Policy view: The unanimous hike is a defense of sound money: five years of above-target inflation had started to shift expectations, and a small, early increase is cheaper than a large, late one. The fair counterpoint is that core CPI of 2.4% suggests the domestic inflation problem is nearly solved, and that the hike mainly addresses an energy shock that monetary policy cannot fix [3].
The Fed's unanimous quarter-point hike to 4% and a dot plot with no cuts in 2026 or 2027 tell markets that the policy rate is staying near 4% until inflation is clearly heading to 2%.
Key takeaways
- The FOMC raised the funds rate range to 3.75% to 4.00% on September 16, 2026, with no dissents [1].
- The median dot is 4.1% for both 2026 and 2027, and 16 of 18 officials are at 4.125% or higher for year-end [2].
- Projections show growth of 2.3% in 2026, unemployment at 4.1% and PCE inflation falling to 2.3% in 2027 [2].
- August CPI rose 0.4% in the month and 3.4% over the year, with core at 2.4% [3].
- The 2-year Treasury yield was 4.10% and the 10-year 5.01% as of September 18, 2026 [4].
Frequently asked questions
Did the Fed raise rates in September 2026?
Yes. On September 16, 2026 the FOMC raised the federal funds target range by a quarter point to 3.75% to 4.00%, with a unanimous vote [1].
What does the September 2026 dot plot show?
The median projection is 4.1% for end-2026 and 2027, 3.9% for 2028 and 3.6% for 2029. For end-2026, 12 participants are at 4.125%, 4 at 4.375% and 2 at 3.875% [2].
Will the Fed cut rates in 2027?
The September projections do not show a cut in 2027; the median rate is 4.1% for both 2026 and 2027, with the first decline to 3.9% in 2028 [2].
What was CPI inflation in August 2026?
Consumer prices rose 0.4% in August and 3.4% over the year. Core CPI rose 0.3% in the month and 2.4% over the year [3].
