- The Federal Reserve raised interest rates by 25 basis points, a move markets expected, and signaled a more restrictive path than projected in June.
- Median rate forecasts rose to 4.1% in 2026, 4.1% in 2027 and 3.9% in 2028, versus 3.8%, 3.6% and 3.4% previously; the median longer-run dot moved up to 3.2% from 3.1%.
- The Fed lifted its 2026 GDP growth forecast to 2.3% from 2.2%, its PCE inflation forecast to 3.7% from 3.6% and core PCE to 3.4% from 3.3%, while lowering the unemployment forecast to 4.1% from 4.3%.
- UBS reads the dots as a fundamental reassessment of the real funds rate needed for price stability, noting near-term dots run above the median longer-run projection.
- Economists tie the hawkish turn to inflation running above target for over five years, with the FOMC statement saying the action supports a timelier return to the 2 percent goal.
Quotes
“Inflation has been above target for over 5 years”
“Hawkish overtones are throughout the latest Summary of Economic Projections”
“In contrast to our expectations, inflation projections were revised up this year, not down as we expected, which is a surprise to us”
“Chairman Warsh threaded the needle very well in that he said that the Fed needed to raise rates today, but he wouldn't prejudge which would happen at future meetings”