US Federal Reserve Raises Rates by 25 Basis Points

The United States Federal Reserve raised its benchmark interest rate by 25 basis points on 16 September 2026. The Federal Open Market Committee voted 12-0 to lift the federal funds target range to 3.75% to 4.00%.

Federal Reserve and FOMC

The Federal Reserve System is the central banking system of the United States and was established in 1913. The Federal Open Market Committee, or FOMC, is the monetary policy body of the Federal Reserve and consists of 12 voting members.

Interest Rate Terms

A basis point is one-hundredth of one percentage point, and 25 basis points equal 0.25 percentage points. The federal funds rate is the overnight lending rate between depository institutions in the United States.

Inflation and Monetary Policy

The Federal Reserve has a statutory mandate to promote maximum employment and stable prices. The Fed uses interest rate changes, open market operations, and reserve requirements as tools of monetary policy. The Fed’s long-run inflation objective is 2%.

Important Facts for Exams

• The Federal Reserve last raised rates in July 2023 before the 2026 increase.
• The federal funds target range after the hike became 3.75% to 4.00%.
• Higher policy rates can affect mortgage rates, auto loans, and credit card interest rates.
• The FOMC is the main body that sets US monetary policy.

Policy Outlook

Fed projections showed that 16 of 18 officials expected at least one more 25-basis-point increase before the end of 2026. The policy statement said that economic activity was expanding at a solid pace, with resilient domestic spending, strong productivity growth, and robust capital investment.