September 22, 2026
On September 16, 2026, the Federal Open Market Committee (FOMC) voted to raise the Federal Funds Rate 25 basis points (1/4%) to 3.75%‒4.0% for the first time since July 2023. The Federal Funds Rate is the rate banks charge each other for overnight loans of their reserve balances. Why do we care about this? We care because raising short rates makes variable rate debt more expensive, influences financial conditions and increases the cost of money across the economy to fight stubborn inflation.
To give you some background, the Federal Funds Rate was at 4.25‒4.5% during most of 2025 until the FOMC lowered rates a total of 75 basis points to 3.5‒3.75% where it stayed for the last 10 months. There is speculation that the FOMC will reverse those 75 basis points of easing and get back to 4.25‒4.5% and see how the economy and inflation respond.
With the unemployment rate at 4.1% and nominal GDP growth still robust, the Federal Reserve felt the economy could handle an adjustment higher in short term rates and indicated there may be further increases in the next six months. They still want and believe inflation can get to 2%. Currently the Consumer Price Index is at 3.4% (having dropped to 2.4% at the beginning of 2026) and has risen primarily because the price of oil went from $60/barrel to $95/barrel. The Fed’s preferred inflation measure, core Personal Consumption Expenditure (PCE), is at 3.3%, up from 2.4% in February.
The Fed believes it still has work to do. The capital markets are trying to understand what the longer-term impact may be. The bond market responded by adjusting short-term rates higher while the 10-year rate welcomed the commitment to fight inflation yet still hovers near 5%. The stock market (S&P 500) moved higher by 2% as they welcomed the Feds’ resolve to combat inflation and remain independent.
We continue to monitor the different sector risks in the equity markets as technology still drives a lot of the return. However, value and mid cap stocks appear to be gaining some support among institutional investors. Fixed income has value again as yields are attractive and for those who can use tax exempt income, municipal bonds have value.