Federal Reserve Raises Interest Rate for First Time in Three Years

The U.S. Federal Reserve raised its main interest rate on September 16, 2026, for the first time in more than three years. The central bank increased the federal funds rate by 0.25 percentage points, bringing the target range to 3.75% to 4%. The decision was approved unanimously by the Federal Open Market Committee.

The Fed said the move was aimed at dealing with inflation, which remains above its 2% target. Officials said the latest action should help bring inflation back toward the central bank’s target more quickly. The Fed also pointed to continued economic activity, strong productivity growth and solid investment as factors considered in its decision.

Higher interest rates can increase borrowing costs for consumers and businesses. Over time, the decision could affect loans such as mortgages, car loans and credit cards, depending on how financial institutions adjust their rates.

The Fed’s latest economic projections also indicate that further rate increases remain possible. The median projection for the federal funds rate at the end of 2026 is around 4.1%, although policymakers’ individual projections vary. These projections are not guarantees of future decisions and can change as economic conditions develop.

The decision comes as American households continue to deal with elevated prices for goods and services. Inflation and the cost of living are expected to remain important economic issues ahead of the U.S. midterm elections.

The rate increase also differs from President Donald Trump’s repeated calls for lower interest rates. Trump has publicly argued that borrowing costs should be reduced, while Federal Reserve Chair Kevin Warsh has emphasized the central bank’s focus on inflation and its independence in setting monetary policy.

Warsh, who was appointed as Fed chair by Trump, had previously supported a more accommodative approach to monetary policy. His support for the latest increase reflects the Fed’s current assessment that inflation remains too high and requires further attention.

The Federal Reserve’s latest decision highlights the difficult balance between controlling inflation and keeping borrowing costs manageable for households and businesses. Further decisions will depend on inflation, employment, economic growth and other financial conditions.