(Kitco News) – The Federal Reserve announced on Wednesday that the Federal Open Market Committee (FOMC) voted unanimously in favor of a quarter-point rate hike, as expected by the market consensus, while the latest economic projections showed all but two policymakers believe another rate hike will be warranted in 2026.
“The Committee decided to raise the target range for the federal funds rate by 1/4 percentage point to 3-3/4 to 4 percent, in support of the Federal Reserve's dual mandate,” the Federal Reserve said in their statement. “The Committee is continuing its policy of maintaining ample reserves in the banking system.”
“Economic activity is expanding at a solid pace,” the central bank said. “While uncertainty remains elevated owing, in part, to geopolitical developments, domestic spending has been resilient. Productivity growth is strong, and capital investment is robust. Job gains have kept pace with the workforce, and the unemployment rate has changed little.”
“Inflation remains elevated,” the FOMC said. “Today's policy action will support a timelier return to the Committee's 2 percent goal. The Committee will deliver price stability.”
The Fed statement did not include any guidance about future rate moves.
All 12 FOMC members voted in favor of the 25-basis-point rate hike, including chair Kevin Warsh as well as Trump’s second-term appointee Stephen Miran, who had dissented in favor of a rate cut at every meeting prior to the June FOMC since joining the Committee.
Gold prices dropped sharply in the wake of the announcement, with spot gold last trading at $4,310.10 per ounce for a gain of 0.38% on the session.
The Fed’s latest Summary of Economic Projections (SEP) showed that 16 of the central bank's 18 responding policymakers expect that an additional quarter-point rate hike will be necessary in calendar year 2026. Only six held that view at the June meeting, when the Fed last published its projections.
As in June, Warsh declined to submit his own forecasts, meaning only 18 of 19 FOMC members provided rate projections for 2026 and 2027.
Kyle Rodda, Senior Financial Market Analyst at Capital.com, said in a comment shared with Kitco News that markets were focusing on the forecasts in the Summary of Economic Projections before the press conference kicked off.
"While Chairperson Kevin Warsh has dismissed the value of the SEP, especially the dot plots, the markets still see informational value in them," he said. "'Higher for longer' could be the theme, with more hikes and no more future cuts projected in line with the upward revision to inflation forecasts -- coupled, it must be said, with upward revisions in GDP forecasts and downward revisions in the unemployment rate forecasts."
"So far equities have taken the news in relatively well," Rodda said. "But evidence of the Fed's hawkishness is in the slightly firmer US Dollar and lower gold price. A special focus will be on the shape of the yield curve too as markets assess what impact policy is having on long term inflation expectations."
Jeffrey Roach, Chief Economist at LPL Financial, said the Fed was more hawkish than expected.
"If the economy keeps up like it has, the Fed is telling us that we may not see a cut until 2028," he said. "Instead, another hike may be on its way."
"Chairman Warsh and the rest of the committee are building a strong reputation through their laser focus on defeating inflation," Roach said. "Hawkish overtones are throughout the latest Summary of Economic Projections. Given the current economic circumstances, the committee delivered what was needed, and markets are handling it remarkably well. Going forward, the inflation debate will likely center on the magnitude of improvement as geopolitical conflicts wane."
