A Unanimous Fed Rate Hike—and Possibly More to Come

All 12 Voting Members Approve a 25-Basis-Point Increase

At 2:00 a.m. Beijing time on September 17, the Federal Reserve announced a 25-basis-point rate increase, bringing the target range to 3.75%–4.00%. It was the first increase since July 2023. On the day of the decision, short-term rates moved noticeably, while long-term rates barely changed. That divergence says more about which expectations the market was revising than the rate increase alone.

Core Inflation Is Near Target, but Risks Remain

August CPI data showed annual core inflation of 2.4%, already close to the 2% target. Even so, the Fed chose to raise rates.

Fed Chair Warsh explained that the meeting had concluded that the test of underlying inflation moving clearly and sufficiently quickly towards target had not yet been met. Policy needed to prevent price increases in some sectors from spreading more widely.

He also put it more directly: “Inflation is too high, and has been for too long.” The increase was therefore aimed not at inflation that had already occurred, but at the risk of price pressures continuing to spread.

Short-Term Yields Rise; Long-Term Yields Barely Move

US Treasury par yields changed as follows from September 15 to September 16:

- Two-year: from 4.67% to 4.74%, up 7 basis points.

- Ten-year: from 5.00% to 5.01%, up 1 basis point.

- Thirty-year: from 5.36% to 5.35%, down 1 basis point.

The Fed’s decision directly determines the cost of overnight funding. Long-term rates are shaped by expectations of future short-term rates plus the risk compensation investors demand.

Reading the Dot Plot

The dot plot contained anonymous submissions from 18 meeting participants, only 12 of whom had voting rights. Compared with the June projections, the median year-end rate forecast had risen noticeably.

Of those 18 participants, two expected no further increases, 12 expected one more increase and four expected two more.

The dot plot captures each participant’s judgment at the time of the meeting. It is neither a committee decision nor a prescribed policy path.

Warsh himself did not submit an individual rate projection. He said his commitment was to monetary policy discipline, rather than any fixed interest-rate outcome.

How Much Does the Increase Change?

Floating-rate debt responds to short-term rates. Credit cards and some business loans, for example, become more expensive immediately.

Long-term fixed-rate mortgages respond to long-term rates. With that end of the curve unchanged this time, monthly payments would not become more expensive for now.

The same distinction helps explain gold and technology stocks. On the day of the decision, gold futures fell 0.70%, while the Nasdaq fell 0.01%.

Gold pays no interest, so real interest rates are a key yardstick. This increase was at the short end, raising the opportunity cost of holding gold.

Technology stocks derive value from earnings far into the future, and their discount rates are linked to long-term rates. This time, long-term yields moved by just 1 basis point.

What to Watch Next

- The updated US mortgage-rate data on September 18.

- October’s inflation and employment releases.

- Changes in energy prices.