Will the Fed raise rates again?

On September 16 the Fed raised its key interest rate — the federal funds ratethe benchmark rate for overnight loans between banks, which influences other lending rates throughout the financial system — by a quarter point, to 3.75–4.00%. It was the first rise since July 2023, and all twelve voters backed it, including the three who had wanted a rise in July and those who had argued for waiting. The statement says the committee wants a "timelier return" to its 2% inflation goal. Prices rose 3.4% over the year to August, so the rate is now slightly above inflation: for the first time in a year, borrowing money costs a little more than prices are going up, and the rate starts to lean on the economy instead of standing still.

The Fed also published new forecasts. Sixteen of its eighteen officials expect at least one more rise before the end of the year, four of them two more; only two think this one is enough. Nobody expects further rises in 2027. Chair Warsh did not put in a forecast of his own, and he gave the shortest press conference on record: inflation, he said, "is too high and has been for too long." The economy gave him room. Shoppers spent 1.2% more in August than in July, the biggest jump since spring, and hiring came back the same month. Pay is the weak spot: it is rising about 3% a year, slower than prices.

The reaction shows how divided the picture still is. Stocks fell: the Dow lost more than 600 points on the day and kept sliding the next. President Trump said he still backs Warsh but called for rates of 1% or lower. Other central banks followed or felt the pull: Hong Kong raised its rate, and the yen dropped. Markets now put the chance of a second rise on October 28 at a little under half, so the debate has simply moved one meeting forward.

The case for another rise in October.

• One quarter point did not change the picture: inflation is still 3.4% against a 2% target, and the Fed itself says it wants a quicker return.
• Sixteen of eighteen officials already expect another rise this year. Waiting until December only delays a step the committee has all but announced.
• The economy took the first rise in stride. Shoppers spent 1.2% more in August and hiring came back, so a second step is unlikely to tip it into a slump.
• Oil is still above $100 a barrel and diesel is at a record. Price rises are spreading into rents and services, where they tend to stay.
• Stopping at one would repeat the lesson of 1980: easing before the job is done let inflation come back, and it took far higher rates to finish it.

The case for waiting.

• A rate rise takes 12 to 18 months to work. The September step has not touched the economy yet, and a second one six weeks later adds risk without adding information.
• Borrowing is already getting dearer without the Fed: the government's 10-year rate is back above 5%, which pushes up mortgages and company loans by itself.
• Excluding food and energy, prices rose 2.4% over the year to August, close to target. Much of what is left is oil, and higher rates cannot produce more oil.
• Pay is rising about 3% a year, slower than prices. Wages are not driving inflation, so there is no spiral for the Fed to break.
• Markets fell hard on the first rise. A second one in October risks tightening credit faster than the committee intends.

A second rise on October 28.

• What would push it: September inflation on October 14 staying at 0.3% or more a month excluding food and energy, strong September hiring on October 2, and minutes on October 7 showing the committee eager to move again.
• Likely reading: the rate goes to 4.00–4.25% and the Fed signals it is close to done. December becomes a pause.

No change in October, a rise in December: the base case.

• The committee watches one more month of prices and jobs, as its forecasts suggest, and makes the second step at the December meeting, which comes with new forecasts.
• Warsh's short press conference and his refusal to give his own forecast leave room for exactly this: act when the data force it, not by the calendar.
• Likely reading: markets steady, the dollar holds its gains, and October's statement repeats that more tightening may be needed.

One and done.

• Would need inflation to cool clearly by November: oil falling back below $90, rents slowing, and September and October prices rising 0.2% a month or less.
• A weak jobs report or a sharp market fall would add to the case, as would pressure from the White House, though the Fed ignored that in September.
• Likely reading: the rate stays at 3.75–4.00% into 2027, and the question turns to when the first cut comes.

If you earn and spend in dollars.

• A fixed-rate mortgage you already have does not change; the rate is locked for the life of the loan. New mortgages follow the rate on 10-year government bonds, not the Fed's rate, and that rate is back above 5%. At about 6.8%, a $400,000 loan costs about $2,600 a month, against $1,690 at the 3% many people locked in before 2022.
• Credit cards and car loans are already moving. The quarter point adds about $25 a year for every $10,000 of card debt, and another rise would add the same again.
• Savings accounts, money-market funds and Treasury bills now pay a little more, roughly a quarter point on the best ones. Check whether your bank passes it on; many do so slowly.
• Jobs are where a rise bites. Its purpose is to slow hiring; so far the labor market has held up, but the effect arrives with a delay of a year or more.
• Your pay is losing ground: wages are rising about 3% a year while prices rise 3.4%. The rise does not fix that this year; it is meant to stop the gap from widening for years.

If you don't use dollars day to day.

• A rise usually strengthens the dollar. Your currency buys fewer of them, and anything priced in dollars, from oil to electronics to travel, costs more at home. The yen's drop after September 16 is an example.
• Dollar savings and deposits pay more; dollar loans cost more.
• Higher US rates pull money out of smaller economies, which often forces their central banks to follow. Hong Kong did within a day.
• The US government's 10-year borrowing rate, back above 5%, is a benchmark for long-term borrowing worldwide. Mortgages and government bonds in your country are priced against it, whatever your central bank does.
• If the Fed stops at one rise while inflation stays near 3.5%, the dollar's buying power keeps fading: good for anyone repaying dollar debt, bad for anyone saving in it.