Federal Reserve Unanimously Raises Rates by 25 Basis Points to Curb Inflation
The Federal Open Market Committee voted unanimously 12-0 to raise the target range for the federal funds rate by 25 basis points, from 3.50%-3.75% to 3.75%-4.00%, marking the first rate hike since July 2023.
The committee's statement indicated that inflation remains elevated, and this action aims to support a faster return to the 2% target, reiterating the committee's commitment to price stability. The Consumer Price Index for August was 3.4% year-on-year, with energy and geopolitical supply shocks being the main sources of price stickiness.
Economic forecasts show that 16 out of 18 committee members expect at least one more rate hike in the remaining two meetings of 2026, with 12 anticipating an additional 25 basis points and 4 expecting two more hikes; participants also revised up growth expectations for the year and lowered unemployment rate forecasts, with the consensus for personal consumption expenditures inflation around 3.7%-3.8%.
Current Chair Waller did not submit a quarterly dot plot, while Powell, although no longer chair, still voted in favor of the rate hike as a committee member. This unanimous vote is the first since May 2025; the previous July meeting had three members advocating for an immediate hike, resulting in a 9-3 vote to maintain rates.
President Trump publicly threatened about 12 days ago that if the Federal Reserve did not lower rates, he would stop trading with over 50 partners that have trade deficits with the U.S., claiming this approach is better than tariffs. The committee not only did not lower rates but instead raised them, widening the gap between the White House and central bank policies.
In market mechanisms, futures had priced in over a 90% probability of the rate hike before it was announced, avoiding a shock from unmet expectations; short-term rates and the dollar were supported by event-driven factors, while long-term rates remained constrained by fiscal and oil price pressures. Beneficiaries include holders of cash and floating-rate assets, as well as inflation hedge positions, while those under pressure include interest-sensitive housing, auto loans, and high-leverage growth stocks; funds are reallocating from duration risk to cash and short-term bonds.
The dot plot indicates that there is still additional tightening space of about 25 to 50 basis points for the year, as written into the committee's majority path, leading to a slight upward revision in market pricing for another hike by the end of the year.
Source: Public Information
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After Waller took over the Federal Reserve in May 2026, he maintained rates at the first meeting in June with a unanimous 12-0 vote, while changing the dot plot from "rate cuts this year" to "rate hikes this year," and fixed the statement to include "the committee will achieve price stability." He previously served as a governor during the Bush administration and has long criticized quantitative easing and fiscal monetization; this rate hike represents the conversion of verbal hawkishness into policy rates. Powell, at the end of his term, faced a Justice Department investigation over renovation projects that ended without consequence, yet still voted in favor of the rate hike after stepping down as chair, indicating that the committee's internal constraints on inflation targets have not dissolved with personnel changes.
In terms of capital pathways, rate hikes do not create new funds but increase the opportunity cost of reserves, raising discount and mortgage loan benchmarks, thereby squeezing incremental credit from housing and consumer loans towards short-term government bonds and money market funds. The White House simultaneously uses trade cut threats to hedge against high rates eating into fiscal interest space, effectively treating external trade deficits as hostages to internal monetary policy; the direction of resource mobilization is: tariffs and embargo rhetoric pressuring import prices, while interest rate tools suppress total demand, both pointing towards nominal rates and trade conditions.
Similar structures appeared during Volcker's confrontation with Carter-Congress pressures in 1979, Powell's continued rate hikes during the tariff cycle in 2018, and Turkey's Erdogan repeatedly replacing central bank governors but ultimately being forced to raise rates. The current Federal Reserve is in a phase of controlling inflation expectations and has not yet completed tightening: it is neither expanding the balance sheet nor shifting to a rate-cutting cycle, but using a unanimous signal to restore credibility that has not met targets for five years.
Structural judgments belong to the transfer of pricing power. Interest rate pricing power has temporarily shifted from administrative terms and election cycles back to committee votes and dot plots; the mechanism is that inflation data (3.4%) and energy supply shocks raise the political cost of "inaction" above the cost of "offending the White House" through rate hikes, while unanimity raises the cost of individual dissent to public division. If trade embargo threats are realized, they would send supply shocks back to prices, reinforcing rather than weakening the logic of central bank rate hikes.
ABAB News · Cognitive Laws
Unanimity is not harmony; it shifts disagreements from voting to the dot plot.
Threatening trade for rate cuts equates to using supply shocks to reinforce rate hikes.
When price stability is written as the last sentence of the statement, interest rates become the true anchor.