- FOMC lifts federal funds target to 3.75%-4% as inflation remains elevated
The Federal Open Market Committee (FOMC) raised the federal funds target range by 25 basis points to 3.75%-4% on Wednesday, with the decision approved unanimously in a 12-0 vote.
The move followed the FOMC's July decision to hold the target range at 3.5%-3.75%. The Committee said economic activity has continued to expand at a solid pace, while inflation remains elevated and uncertainty remains high.
Fed Raises 2026 Rate Projection
The FOMC's latest Summary of Economic Projections puts the median federal funds rate at 4.1% at the end of 2026, up from 3.8% in the June projections. The median rate projection is also 4.1% for 2027, 3.9% for 2028, and 3.6% for 2029, before reaching 3.2% over the longer run.
The projections show 12 of the 18 participating officials expecting the federal funds rate midpoint to be 4.125% at the end of 2026, while four projected 4.375% and two projected 3.875%.
Inflation and Economic Growth Outlook
The Fed's median projection for 2026 PCE inflation rose to 3.7% from 3.6% in June. Core PCE inflation is projected at 3.4%, compared with 3.3% previously.
Real GDP growth is projected at 2.3% in 2026, up from the June projection of 2.2%. The median unemployment-rate projection fell to 4.1% from 4.3%. The Committee said its decision was intended to support its dual mandate and a return of inflation to its 2% objective.
Fed Adjusts Key Policy Rates
Separately, the Federal Reserve Board unanimously approved a 25-basis-point increase in the interest rate paid on reserve balances to 3.90%, effective Thursday. The Board also approved a 25-basis-point increase in the primary credit rate to 4%.
The Fed's implementation framework directs the New York Fed's Open Market Desk to conduct operations as needed to maintain the federal funds rate within the new target range while maintaining ample reserves.