Overview
- The Federal Reserve raised its benchmark federal funds rate by 25 basis points to a 3.75%–4.00% target range on Sept. 16 in a unanimous 12-0 FOMC vote.
- Chair Kevin Warsh and the Fed cited inflation that remains above the 2% goal and recent spikes in energy prices as the main reasons for the move.
- Markets quickly repriced expectations: short- and intermediate-term Treasury yields jumped to multi-year highs, stocks fell and the yield curve flattened as investors bet on more tightening.
- The Fed’s dot plot showed 16 of 18 policymakers expect at least one more hike this year, prompting firms such as Goldman Sachs to move their forecast for the next increase to October.
- Households will face higher borrowing costs for mortgages, auto loans and credit cards because long-term rates and mortgage pricing track Treasury yields, while savers and new short-term fixed-income investors should see better yields over time.