Fed signals one more rate rise this year, steady policy in 2027

Washington, United States. Federal Reserve officials expect one more interest rate increase this year after raising the target federal funds rate by a quarter percentage point to 3.75%-4.00%, according to quarterly projections released following their latest policy meeting. Policymakers forecast no rate changes in 2027, while raising their near-term inflation outlook.

Interest rate projections

The quarter-point increase announced on Wednesday had been widely expected. Fed officials projected that rates would decline in 2028 and that the federal funds rate would stand between 3.5% and 3.75% in 2029.

In June, officials had projected one quarter-point rate increase this year and a cut of the same size in 2027.

The long-run federal funds rate expectation was raised to 3.2% from the 3.1% forecast issued in June.

Inflation outlook

Policymakers have been dealing with inflation that has remained high. Since the June meeting, price pressures have increased, partly due to rising energy costs linked to the Middle East war, intensifying concerns that inflation may not return to the Fed’s 2% target in a timely manner.

The median forecast for inflation, measured by the personal consumption expenditures price index, was raised to 3.7% for 2026 from 3.6% in June. Officials continued to project PCE inflation at 2.3% the following year and 2.1% in 2028, compared with a June forecast of 2% for 2028.

The Fed expects inflation to return to its 2% target in 2029.

Growth and employment

The forecasts showed mostly steady expectations for growth and employment. GDP growth this year is projected at 2.3%, up from the 2.2% forecast in June, and at 2.4% in 2027.

The unemployment rate, which stood at 4.1% in August, is forecast to remain at 4.1% by the end of this year and through 2029.

Eighteen of 19 policymakers submitted interest rate forecasts, strongly suggesting that Fed Chairman Kevin Warsh did not submit projections, as was also the case in June.