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# The Federal Reserve raised rates after a three-year pause
- URL: https://www.bushletter.com/federal-reserve-raises-rates-after-three-year-pause/
- Published: 2026-09-17T02:32:12.000Z
- Updated: 2026-09-17T02:32:12.000Z
- Description: A unanimous committee vote pushed the target range to 4 per cent, and financial markets now price an 88 per cent chance the Reserve Bank will follow suit on 29 September.
- Author: Editor
- Tags: Finance, US, Federal Reserve

![Elias Thorne](https://res.cloudinary.com/dz77sb7j1/image/upload/v1774262579/bushletter/authors/elias-thorne.png)

By **Elias Thorne** · 2026-09-17

TLDR

The US Federal Reserve raised its benchmark rate a quarter point to 3.75 to 4.00 per cent on a unanimous 12 to 0 vote, ending a pause of more than three years. Australian markets now price an 88 per cent chance the Reserve Bank follows suit on 29 September.

KEY TAKEAWAYS

01A unanimous 12 to 0 FOMC vote lifted the federal funds target range to 3.75 to 4.00 per cent.

02Sixteen of 18 Fed officials expect a further rise this year, lifting the median year-end projection to 4.1 per cent.

03Markets priced an 88 per cent chance of an RBA rate rise at its 29 September 2026 meeting.

04The ASX 200 rose 0.25 per cent to 8,717 points the following session, with the Australian dollar near 70.90 US cents.

05Van Eck's Russel Chesler said the RBA must lift the cash rate 25 basis points to 4.6 per cent.

## The decision and the statement language

The Federal Open Market Committee lifted the target range for the federal funds rate by a quarter of a percentage point on 16 September 2026\. The range is now 3.75 to 4.00 per cent. It is the first increase since July 2023, approved on a unanimous 12 to 0 vote.[\[1\]](https://www.federalreserve.gov/newsevents/pressreleases/monetary20260916a.htm) Sixteen consecutive meetings had passed without a move; the pause is now over.

The FOMC statement repays close reading. The committee said inflation remains elevated and that the action would support a return to its 2 per cent goal. That is the framing a board uses when it treats the path back to target as unfinished rather than merely slow.[\[1\]](https://www.federalreserve.gov/newsevents/pressreleases/monetary20260916a.htm) Statement language, in this cycle, has consistently run ahead of the decision itself as a guide to where the committee's patience ends.

Chair Kevin Warsh put the matter with rather less diplomatic economy. "The plain fact is that inflation is too high and has been for too long," Warsh said.[\[4\]](https://www.reuters.com/markets/us/warsh-says-fed-focus-to-stay-inflation-underlying-trends-have-not-meaningfully-improved-2026-09-16/?ref=bushletter.com) Plain facts, in central-bank communication, carry a specific weight: they signal that the chair is not entertaining nuance at this juncture.

## What the dot plot says next

The updated Summary of Economic Projections showed 16 of 18 participants expect another rate increase before the end of 2026\. That lifted the median year-end federal funds rate projection to 4.1 per cent, from 3.8 per cent in June.[\[1\]](https://www.federalreserve.gov/newsevents/pressreleases/monetary20260916a.htm) The dot plot carries no binding force. When sixteen of eighteen participants cluster around the same number, the committee's centre of gravity is not difficult to read. The median has shifted up by 30 basis points in a single quarter.

A committee that revises its median upward while resuming hikes is saying the June forecasts were too optimistic. The yield curve absorbed that signal without ceremony. The short end repriced faster than the long end in the hours after the statement.

## Australian market reaction

Sydney markets absorbed the news with relative composure. The S&P/ASX 200 rose 0.25 per cent to 8,717 points on 17 September, and the Australian dollar traded near 70.90 US cents.[\[3\]](https://www.abc.net.au/news/2026-09-17/asx-markets-business-live-news-september-19-2026/107162296?ref=bushletter.com) Equities rising on a tightening signal from Washington suggests the market had already priced a Fed move. What cut through was the unanimity of the vote.

Financial markets priced an 88 per cent chance of an RBA rate rise in September following the Fed's decision.[\[3\]](https://www.abc.net.au/news/2026-09-17/asx-markets-business-live-news-september-19-2026/107162296?ref=bushletter.com) The Reserve Bank's next monetary policy decision statement is scheduled for 2.30 pm AEST on 29 September 2026.[\[2\]](https://www.rba.gov.au/schedules-events/calendar/?ref=bushletter.com)

## What local analysts expect from the RBA

Betashares chief economist David Bassanese said "the Fed's rate rise will likely add to pressure on the Reserve Bank to raise interest rates again."[\[3\]](https://www.abc.net.au/news/2026-09-17/asx-markets-business-live-news-september-19-2026/107162296?ref=bushletter.com) The framing is deliberate: the pressure is additive, layered on top of whatever the RBA's own inflation data already demands of the board.

Van Eck's Russel Chesler, head of investments and capital markets, went further. "In our view, the RBA has no other option but to increase the cash rate by 25 bps bringing it to 4.6 per cent," Chesler said.[\[3\]](https://www.abc.net.au/news/2026-09-17/asx-markets-business-live-news-september-19-2026/107162296?ref=bushletter.com) A cash rate of 4.6 per cent would sit at its highest level in more than a decade. The RBA board has until 29 September to decide whether its own arithmetic compels the same conclusion.

This article contains analysis and commentary on market conditions. It does not constitute financial, investment, or professional advice. Past performance is not indicative of future results. Always consult a qualified adviser before making financial decisions.

SOURCES & CITATIONS

1. [Federal Reserve press release, 16 September 2026](https://www.federalreserve.gov/newsevents/pressreleases/monetary20260916a.htm)
2. [Reserve Bank of Australia events calendar](https://www.rba.gov.au/schedules-events/calendar/?ref=bushletter.com)
3. [ASX markets live, 17 September 2026](https://www.abc.net.au/news/2026-09-17/asx-markets-business-live-news-september-19-2026/107162296?ref=bushletter.com)
4. [Kevin Warsh on inflation and Fed policy, Reuters, 16 September 2026](https://www.reuters.com/markets/us/warsh-says-fed-focus-to-stay-inflation-underlying-trends-have-not-meaningfully-improved-2026-09-16/?ref=bushletter.com)

FREQUENTLY ASKED QUESTIONS

Why did the Federal Reserve raise interest rates in September 2026?

The FOMC said inflation remains elevated and that raising rates will support a timelier return to its 2 per cent target. Chair Kevin Warsh said inflation has been too high for too long.

What does the Fed's rate rise mean for Australian interest rates?

Markets priced an 88 per cent chance the RBA raises its cash rate at its 29 September 2026 meeting. Analysts at Van Eck and Betashares said the Fed move adds pressure on the RBA to lift its benchmark rate to 4.6 per cent.

What is the new US federal funds rate target range?

The FOMC set the target range at 3.75 to 4.00 per cent, up from the previous range, on a unanimous 12 to 0 vote.

![Elias Thorne](https://res.cloudinary.com/dz77sb7j1/image/upload/v1774262579/bushletter/authors/elias-thorne.png)

[Elias Thorne](https://bushletter.com/author/elias-thorne/?ref=bushletter.com)

Elias Thorne writes about interest rates, the bond market and the Reserve Bank. He is interested in what monetary policy actually does to household budgets, and in the long stretches of economic history that tend to repeat.