Fed drops energy-shock inflation line, raises rates in unanimous vote

The Federal Reserve stopped describing energy supply shocks as part of why inflation is high, then raised rates in a unanimous vote, the first increase since July 2023. Chairman Kevin Warsh's committee voted 12-0 to set the range at 3.75% to 4%, a 25-basis-point increase that puts policy back where it stood before the December 2025 cut.

In July the same committee held at 3.50% to 3.75% on a 9-3 vote, and its statement said inflation remained elevated "in part reflecting supply shocks that have driven price increases in certain sectors, including energy." Wednesday dropped that partial explanation. The new text is two sentences: "Inflation remains elevated." And: "Today's policy action will support a timelier return to the Committee's 2 percent goal." Beth M. Hammack, Neel Kashkari, and Lorie K. Logan wanted a quarter-point increase then. They have it now, and no one dissented.

The quarter-point step itself had been widely expected. The news for anyone who holds Treasuries, stocks, or oil is the path around it. The median year-end funds-rate forecast rose to 4.1% for both 2026 and 2027, from 3.8% and 3.6% in June, and to 3.9% for 2028 from 3.4%. As of about 2:45 p.m. Eastern, the 10-year Treasury yield was at 4.97%, down 3 basis points, and the S&P 500 was up 0.23%.

Activity holds up as the Fed tightens into $102 oil

The rest of the statement moved less. July had said economic activity was expanding "despite elevated uncertainty that owes, in part, to the conflict in the Middle East." Wednesday's version still called uncertainty elevated "owing, in part, to geopolitical developments," then added that domestic spending has held up. Productivity growth is "strong" and capital investment "robust." The labor-market sentence was left alone: job gains have kept pace with the workforce, and unemployment has changed little. The committee kept "The Committee will deliver price stability."

West Texas Intermediate was at $102.36 a barrel, down 3.3% on the day and still far above its 52-week low of $54.98. Oil had already been fading before 2 p.m., so that drop is not a statement-hour verdict. It is the price level the committee is tightening into.

Projections: 4.1% through 2027

The Summary of Economic Projections, last updated in June, moved in one direction. Officials see a bit more growth, a bit less unemployment, slightly higher inflation, and a much higher funds rate.

The longer-run funds-rate median ticked up to 3.2% from 3.1%. Longer-run GDP stayed at 2.0%, unemployment at 4.2%, headline PCE at 2.0%. GDP and inflation are fourth-quarter to fourth-quarter; unemployment is the fourth-quarter average; the funds rate is the year-end midpoint of the target range.

Eighteen participants submitted 2026 rate dots. Twelve sat at 4.125%, the midpoint of a 4% to 4.25% range: one more quarter-point increase from today's setting. Four sat at 4.375%, two more hikes. Two sat at 3.875%, which is the midpoint of the new range and implies no further move this year. The 4.1% median is that first cluster.

That is a mark-up of the whole path, not a 2026 tweak. The committee does not see the funds rate coming down in 2027, and the 2028 median is 50 basis points above June's. The projections have told holders this hike is not the last.

Treasury yields fall as stocks hold up

The 10-year yield was at 4.97%, down 3 basis points, still close to its 52-week high of 5.02%. The 30-year was at 5.32%, down 5 basis points.

The S&P 500 was at 7,603, up 0.23%. The Nasdaq Composite was at 26,153, up 0.66%. The Dow Jones Industrial Average was at 51,964, down 0.25%. The dollar index was at 99.83, up 0.21%.

Long-duration Treasuries did the work on the bond side. The iShares 20+ Year Treasury Bond ETF BTLT (B) was up 0.85% at $81.40, about 1.2% above its 52-week low of $80.46. Intermediate Treasuries moved less: the iShares 7-10 Year Treasury Bond ETF BIEF (B) was up 0.23%. The iShares 1-3 Year Treasury Bond ETF BSHY (B) was unchanged. Crude's slide showed up in the United States Oil Fund BUSO (B), down 3.2%. Gold futures were at $4,316.40, down 0.38% as of 2:35 p.m.; SPDR Gold Shares BGLD (B) was up 0.14%.

One session does not reprice a 4.1% year-end median. BTLT is still down 4.3% year to date on a total-return basis and 6.1% over the past year. The bounce is what a drop in long yields looks like in the vehicle that holds them.

Until December's next forecast round

The December 2025 cut is fully reversed, the median path does not reverse again this year, and oil is still above $100. The next decision, on October 27-28, comes without a fresh set of projections, which is why Wednesday's dots are the guidance until December 8-9.

The European Central Bank's 25-basis-point increase, announced September 10, took its deposit rate to 2.50% effective Wednesday. The new U.S. range sits 1.25 to 1.50 percentage points above that rate. The Bank of England's Bank Rate is 3.75%, with a decision due Thursday.