US Fed raises interest rate for first time in 3 years to 3.75-4% citing strong economic activity

US Fed’s Federal Open Market Committee (FOMC), in its outcome after the September meeting, announced that the central bank has unanimously approved the rate hike move for the US economy, citing the solid expansion pace of economic activity in America.

The latest September rate hike of 25 basis points comes for the first time since the central bank raised its benchmark interest rates back in July 2023. All 12 members of the board have voted towards the increasing the rates this time.

The US central bank also said that the FOMC is maintaining its dual mandate of managing inflation while supporting the job market, while keeping up with “ample reserves” in the American banking system.

“The Committee decided to raise the target range for the federal funds rate by 1/4 percentage point to 3-3/4 to 4%, in support of the Federal Reserve's dual mandate. The Committee is continuing its policy of maintaining ample reserves in the banking system,” as per the FOMC’s official statement.

FOMC retains price stability goal

In its official statement, the US Fed’s FOMC said that economic activity in America is expanding at a solid pace despite concerns looming over the elevated uncertainty in the market due to geopolitical developments.

“Uncertainty remains elevated owing, in part, to geopolitical developments; domestic spending has been resilient,” said the US Federal Reserve.

The US central bank’s FOMC also said that productivity growth is strong with robust capital investments, while job growth kept up its pace with the workforce.

“Inflation remains elevated. Today's policy action will support a timelier return to the Committee's 2% goal. The Committee will deliver price stability,” said the FOMC in its statement.

All eyes are now on US Fed Chairman Kevin Warsh’s press conference, which comes after the central bank’s FOMC meeting outcome release at 2:30 pm (ET), which is 12 am (IST) or midnight for people tracking from India.

Although the Warsh has so far refrained from sharing an indication or projection for the interest rate trajectory, sticky inflation concerns in the market are expected to remain a key focus of the central bank in the upcoming period.

US Fed’s outcome comes at a time when total non-farm payroll employment in America increased by 162,000 in the 12 months ended August 2026, indicating healthy job growth in the economy, while the unemployment rate was unchanged at 4.1%, according to Bureau of Labor Statistics (BLS) data.

BLS data also showed that the CPI inflation rate of the US economy was steady at 3.4% as of the 12-month period ended August 2026, in line with market expectations and the July 2026 level of 3.4% at par.

Sticky inflation concerns in the United States are due to the US-Iran conflict in West Asia, as the rising cost of energy sources and the higher cost of imports weigh on the economy.

How did US stock market react today?

Data showed that the benchmark Dow Jones Industrial Average declined to touch its intraday low level after the US Fed’s decision to raise interest rates by 25 bps during Wednesday’s market.

As of 2:46 pm (ET), Dow Jones was down 0.28% to 51,948 points on September 16, in comparison to 52,093.11 points at the previous Wall Street close.

Meanwhile, the S&P 500 recovered from its drop after the announcement, trading 0.15% higher at 7,596 points on Wednesday’s US market, and the Nasdaq 100 recovered, trading 0.54% higher at 29,092 points as investors carried out buying at the day’s low level.