WASHINGTON — The Federal Reserve raised its benchmark interest rate Wednesday for the first time since 2023, a move intended to cool persistent inflation but likely to keep borrowing expensive for households and businesses.
The Federal Open Market Committee voted unanimously to increase its target range by one-quarter percentage point, from 3.5%–3.75% to 3.75%–4%. The new range takes effect Thursday, Sept. 17.
In its official statement, the central bank said inflation remains elevated even as the economy continues to expand at a solid pace. Fed policymakers said the increase is intended to move inflation back toward their long-term 2% goal more quickly.
The federal funds rate is the overnight rate banks charge one another. Consumers do not pay it directly, but changes often flow into the prime rate and other borrowing costs. Credit-card annual percentage rates and some variable-rate loans may rise relatively quickly. New auto loans, mortgages and small-business financing could also remain costly, although those rates depend on several market factors beyond the Fed’s decision.
People with existing fixed-rate mortgages and fixed-rate auto loans will not see their interest rates change because of Wednesday’s action. Savers, meanwhile, could benefit if banks raise yields on savings accounts and certificates of deposit.
The increase may be especially difficult for families with limited financial cushions and entrepreneurs who rely on credit to cover equipment, inventory or payroll. Black households and business owners have historically faced wider wealth gaps and more barriers to affordable financing, which can make higher borrowing costs harder to absorb.
The decision also reflects the Fed’s balancing act. Higher rates can help slow price increases by reducing borrowing and spending, but they can also weaken hiring, housing demand and business expansion if kept elevated too long.
According to the Associated Press, the quarter-point increase lifts the effective benchmark rate to about 3.9%. Chair Kevin Warsh said the central bank must ensure that inflation moves closer to its target. Federal Reserve projections indicated that many policymakers expect at least one additional increase before the end of 2026, although future decisions will depend on economic data.
For consumers, the practical response is to review variable-rate debt, compare savings yields and calculate the full cost of financing before taking on a new loan. Borrowers should also be cautious about refinancing fixed-rate debt unless the new terms clearly lower their total cost.
Sources: Federal Reserve statement, Sept. 16, 2026; Associated Press, Sept. 16, 2026; Reuters, Sept. 16, 2026.
