The Fed Raised Rates by 0.25 Percentage Points, but It Is Not Over Yet... 18 of 19 Expect Another Hike This Year

【Financial News, New York = Correspondent Lee Byung-chul】  The Federal Reserve System (Fed) raised its benchmark interest rate by 0.25 percentage points, increasing the likelihood that the move will not be a one-off. With 18 of the Fed’s 19 policymakers projecting at least one more rate hike this year, U.S. monetary policy may be entering a phase of full-fledged additional tightening.
The Fed concluded its regular Federal Open Market Committee (FOMC) meeting on the 16th local time and raised the federal funds rate by 0.25 percentage points, from 3.50–3.75% to 3.75–4.00%. After keeping rates unchanged for five consecutive meetings through July, the Fed has once again opted for a rate hike. It was also the first rate increase since July 2023.
Rising international oil prices stemming from the Middle East and persistent inflation have pushed the Fed back toward tightening. As recent U.S. inflation indicators began to rise again and international oil prices surpassed $100 per barrel, concerns about energy-driven inflation also grew. In addition, the stronger-than-expected performance of the U.S. economy and consumer spending has increased the Fed’s room to raise rates, analysts said. U.S. retail sales rose 1.2% in August from the previous month, while import prices jumped 0.7%.
The market’s attention focused less on the hike itself than on the future path of interest rates.
The Fed policymakers’ new rate projections, released alongside the decision, strongly suggested that the latest hike may not be a one-time move.
Of the 19 policymakers who submitted projections, 18 expected the federal funds rate to be at least 0.25 percentage points higher than its current level by the end of this year. In effect, all but one judged that an additional rate hike would be necessary this year.
Four policymakers, in particular, projected that rates would need to rise by an additional 0.50 percentage points this year. This leaves open the possibility that the Fed could raise rates twice during the remaining period, by 0.25 percentage points each time.
Given that the Fed raised the rate to 3.75–4.00% on this occasion, most policymakers appear to expect the year-end federal funds rate to reach at least 4.00–4.25%.
The projections also pointed to the possibility that high interest rates could persist for a considerable period into next year. Although policymakers’ rate projections for 2027 varied somewhat, a majority expected the federal funds rate to remain around 4.00–4.25%.
Some policymakers projected an even higher rate. Eight policymakers forecast that the federal funds rate would reach 4.25–4.50% by the end of 2027. By contrast, four expected the rate to fall to 3.50–3.75% or lower.
[email protected] Correspondent Lee Byung-chul Reporter