WASHINGTON, Sept. 16 (Xinhua) -- The U.S. Federal Reserve on Wednesday raised its target federal funds rate by 25 basis points to a range of 3.75 percent to 4 percent to address persistent inflation, marking its first interest rate hike since July 2023.
"Economic activity is expanding at a solid pace. While uncertainty remains elevated owing, in part, to geopolitical developments, domestic spending has been resilient. Productivity growth is strong, and capital investment is robust. Job gains have kept pace with the workforce, and the unemployment rate has changed little," said the Federal Open Market Committee (FOMC) in a statement.
In support of the Federal Reserve's dual mandate, "the Committee decided to raise the target range for the federal funds rate by 1/4 percentage point to 3-3/4 to 4 percent," the FOMC said.
The committee reaffirmed "its policy of maintaining ample reserves in the banking system."
"Inflation remains elevated. Today's policy action will support a timelier return to the Committee's 2 percent goal. The Committee will deliver price stability," it reiterated.
All 12 FOMC members voted in favor of the rate hike.
In conjunction with the FOMC meeting held on Sept. 15-16, participants also submitted their projections of the most likely outcomes for real GDP growth, the unemployment rate and inflation for each year from 2026 to 2029 and over the longer run.
The Fed's Board members and Federal Reserve Bank presidents projected median U.S. GDP growth of 2.3 percent in 2026, up from the June projection of 2.2 percent. The median unemployment rate was projected at 4.1 percent in 2026, down from the June projection of 4.3 percent.
For 2027, participants raised their GDP growth projection to 2.4 percent from 2.3 percent and lowered their unemployment rate projection to 4.1 percent from 4.3 percent.
As for inflation, as measured by the personal consumption expenditures price index, FOMC participants projected it at 3.7 percent in 2026, up from the June projection of 3.6 percent. The projection for 2027 remained unchanged at 2.3 percent.
The participants defined "appropriate monetary policy" as the future path of policy that best satisfies their interpretation of the statutory mandate to promote maximum employment and price stability.
"The plain fact is that inflation is too high and has been for too long," Fed Chair Kevin Warsh said at a press conference after the FOMC meeting. He has said that the risk is that people's inflation expectations become "unanchored," which means people lose faith that inflation may return to normal.
"The Committee's unanimous vote shows our resolve to achieve price stability on a timelier basis," Warsh said.
"Inflation is the problem," he reiterated. "Stable prices have been the problem for more than five-and-a-half years."
Warsh put a very positive spin on the interest rate hike, saying a robust and resilient economy can handle a quarter-point hike.
He failed to say whether an aggressive rate-hiking cycle is on the way. "I'm not in the forward guidance business," he said.
As for AI's potential economic impact, Warsh said the Fed has created a task force to study that.
Responding to a question about U.S. President Donald Trump's demands for interest rate cuts, Warsh said Fed independence is a "two-way street" and Fed officials "stay in our lane."
In early September, Trump threatened to completely stop trade with countries running trade surpluses with the United States should the Fed fail to cut rates, triggering the Fed independence issue. ■
