Federal Reserve raises interest rates to 3.75%–4%

The Federal Open Market Committee (FOMC) raised its target interest rate range to 3.75%–4%, marking the first increase since 2023. The decision was reached via a unanimous 12-0 vote, contrasting with the July meeting where three regional bank presidents dissented.

Inflation data shows headline inflation held at 3.4% in August, driven largely by a 27.4% year-over-year increase in gasoline. While annual core inflation eased to 2.4%, the monthly core print of 0.3% exceeded consensus expectations, influenced by reaccelerating shelter costs and rising airfares.

Federal Reserve projections suggest the year-end federal funds rate could land between 4.1% and 4.4%, implying a potential additional quarter-point hike before December. Looking toward 2027, officials remain divided: eight members anticipate another hike, six expect rates to hold, and four foresee cuts.

Market implications include pressure on AI stocks, as rising rates can reduce the present value of future earnings for high-growth companies and increase borrowing costs for the capital-intensive AI infrastructure build-out.