Fed lifts rates to 3.75%–4% and sees 4.1% through 2027

The Federal Reserve's first interest-rate increase in more than three years is reverberating well beyond its policy benchmark, boosting the dollar, keeping Treasury yields near multi-decade highs, and intensifying pressure on an already strained U.S. housing market. The Federal Open Market Committee voted unanimously on Wednesday to raise the federal funds target range by 25 basis points to 3.75%–4%. The bigger signal came from the Fed's updated rate projections: officials now see the median policy rate at 4.1% at the end of both 2026 and 2027. In June, the comparable estimates were 3.8% and 3.6%, respectively, pointing to a longer period of elevated borrowing costs than previously expected. Markets quickly leaned into a more aggressive tightening path. Interest-rate futures on Thursday suggested a 53% chance of another hike as soon as October, with traders pricing roughly three increases over the broader tightening cycle. The two-year Treasury yield touched its highest level since July 2024 before easing to around 4.72%, while the 10-year yield held near 5%. The dollar rose 0.7% on Wednesday and reached a seven-week high on Thursday. (Source: Trading Economics) U.S. equities initially reacted negatively. The Dow fell 1.21% on Wednesday, the S&P 500 slipped 0.45%, and the Nasdaq finished close to flat. Higher yields also raise the discount rate applied to future profits, which can weigh on richly valued growth and technology stocks. That dynamic could become especially important for the capital-intensive AI boom, as heavy corporate borrowing for AI infrastructure has already been cited as one factor adding pressure to long-term Treasury yields. Housing may feel the impact first. The average 30-year fixed mortgage rate rose to 6.76% last week, the highest level in more than a year. Homebuilder confidence slid to a 12-month low, and 38% of builders reported cutting prices. (Source: Trading Economics) Consumers carrying credit-card balances or adjustable-rate loans also face higher borrowing costs after major U.S. banks lifted prime lending rates following the Fed decision. One constraint is that higher rates cannot fix disrupted oil supply. Brent crude fell after the Fed decision as the dollar strengthened, but remained above $105 a barrel. The key question for markets is shifting from whether the Fed hikes once to whether an oil-driven inflation shock could lock the U.S. into a sustained higher-rate environment.