At its meeting on September 16, 2026, the Federal Reserve decided to raise the target range for the federal funds rate by 25 basis points , to 3.75%–4.00% . The decision was unanimous, 12 to 0 .
The Federal Reserve explained that U.S. economic activity continues to expand at a robust pace, and that domestic spending has shown resilience, alongside strong productivity growth and capital investment. Job growth has also continued at a pace consistent with labor force growth, while the unemployment rate has remained largely unchanged.
In contrast, the Fed confirmed that inflation remains high , and that the current interest rate hike is aimed at supporting a timely return of inflation towards the bank's 2% target.
Growth and unemployment forecasts are improving
The Federal Reserve raised its forecast for real GDP growth in 2026 to 2.3%, up from 2.2% in its June projection , and also increased its 2027 growth forecast from 2.3% to 2.4% . It anticipates growth of 2.2% in 2028 and 2.1% in 2029 , before stabilizing around 2.0% over the long term .
In the labor market, the Federal Reserve lowered its unemployment forecast for 2026 from 4.3% to 4.1% , and similarly for 2027 from 4.3% to 4.1% . It also expects unemployment to remain at 4.1% in 2028 and 2029 , compared to a long-term level of 4.2%.
This means the new forecast combines stronger economic growth and lower unemployment compared to the June forecast.
Inflation remains above target
The Fed raised its 2026 PCE inflation forecast from 3.6% to 3.7% , while keeping its 2027 forecast at 2.3% , and expects it to decline to 2.1% in 2028 and 2.0% in 2029 .
As for core PCE inflation, its forecast for 2026 was raised from 3.3% to 3.4% , with expectations of it declining to 2.5% in 2027, then 2.2% in 2028 and 2.0% in 2029 .
Therefore, the Fed expects the process of inflation returning to the 2% target to be gradual and to extend over several years .
Interest: The biggest change in the Fed's forecasts
The most obvious shift is seen in interest rate expectations.
The June forecast predicted the following trajectory:
2026: 3.8% → 2027: 3.6% → 2028: 3.4% → Long-term: 3.1%
The new September forecast is as follows:
2026: 4.1% → 2027: 4.1% → 2028: 3.9% → 2029: 3.6% → Long-term: 3.2%
This means that the Fed raised its interest rate forecast for the end of 2026 by about 30 basis points compared to June, and by about 50 basis points for 2027 and 2028 .
The Dot Plot also shows that committee members expect interest rates to remain around high levels during 2026 and 2027, before beginning a gradual decline during 2028 and 2029.
Summary
The main message from the images is that the Fed does not see economic weakness that warrants a rapid interest rate cut. On the contrary, it raised interest rates by 25 basis points, increased its growth forecasts, lowered its unemployment forecasts, slightly raised its inflation forecasts, and, most importantly, significantly raised its projections for the trajectory of interest rates in the coming years .
Therefore, the September forecast points to a tighter monetary policy for a longer period than was expected in June , with inflation expected to return to 2% gradually, rather than rapidly.
