The Federal Reserve raised its benchmark interest rate by 25 basis points on Wednesday and signaled one more increase is likely in the months ahead. The S&P 500 turned negative after the decision, and analysts said traders were pricing in more rate hikes than they had previously expected.
The Fed raised rates by 25 basis points on Wednesday, matching expectations, while signaling that just one additional rate hike is likely to come. The S&P 500 turned negative, falling 0.45%, after initially holding higher following the announcement. Analysts said traders were pricing in more rate hikes than they had previously expected.
A unanimous vote at the Fed
The Fed's policy-making committee was unanimous in its decision, and 16 of the 19 members expect another increase at either their October or December meeting. Vincent Ahn, president and portfolio manager at SLW Investments, told MarketWatch in an email that the outcome mattered because a hike only restores credibility if policymakers act together: "a credibility move only works if the room believes it".
Wednesday's increase was the first since July 2023, reversing course after the Fed began cutting rates in September 2024 to try to engineer a soft landing. Many Fed officials now think those cuts, including three in 2025, went too far.
Officials split on 2027
Fed officials were more divided about next year, with 10 signaling they see no further moves in 2027 while eight are penciling in another quarter-point increase. After the decision, the yield on the 2-year Treasury note rose to its highest level since July 2024, and the 10-year Treasury yield topped 5%, a move that dragged stocks lower.
Inflation has persisted for more than five years and worsened this summer because of tariffs and the war with Iran, and more Fed officials have lost patience with it. President Trump has pushed for lower borrowing costs but did not explicitly criticize the Fed or Chairman Kevin Warsh in a social-media post following the decision.
Bloomberg Intelligence's Ira Jersey called Wednesday's press conference Warsh's best public speech since he took over the Fed in May, saying his message was simple: a 2% inflation target and growth that's holding up.
Source: MarketWatch
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