Fed Hikes Rates for First Time Since July 2023; Markets Price Three More 25 bp Moves by Mid-Next Year

BlockBeats report: On Sept. 17, the Federal Reserve's Federal Open Market Committee (FOMC) voted unanimously to raise interest rates by 25 basis points, lifting the target range for the federal funds rate to 3.75%–4.00%. It was the Fed's first rate increase since July 2023. The latest dot plot showed 16 officials expect at least one additional hike by 2026, while the median policy-rate projection for both 2026 and 2027 stands at 4.1%. Fed Chair Jerome Powell said recent data point to a strong U.S. economy and a resilient labor market, but inflation remains too high and has persisted for too long. He added that the FOMC is not yet confident inflation is moving toward its 2% target, stressing that inflation, not growth, is the economy's main challenge. Powell also said the rise in U.S. Treasury yields reflects three main drivers: strong U.S. economic performance, intensified competition for capital, and geopolitical factors. He did not directly reference the U.S.-Iran conflict, though he has previously noted that geopolitical developments have led the Fed to reassess its economic outlook. Markets quickly repriced in a more hawkish direction. Between the decision release and Powell's press conference, spot gold fell by about $100, the U.S. Dollar Index rose roughly 40 points to break above 100, the 2-year Treasury yield climbed about 10 basis points, the 10-year yield rose about 5 basis points, and U.S. equities broadly turned lower. Rate futures are now pricing roughly 33 basis points of additional tightening for the rest of this year, about 6 basis points higher than before the meeting, and a further cumulative increase of around 75 basis points by June next year—equivalent to three 25-basis-point hikes.