The Federal Reserve increased its benchmark policy rate by a quarter point for the first time since 2023, a move widely anticipated by markets. Following the hike, the 10-year US Treasury yield stayed lower by five basis points, settling at 4.95%. This decision was primarily driven by the Fed's ongoing efforts to curb inflation, as indicated by new quarterly projections showing widespread support among policymakers for additional rate increases.
Policymakers' new economic projections also revised up inflation estimates, underscoring the central bank's commitment to achieving its 2% inflation target. The Fed's policy statement explicitly noted that "Today's policy action will support a timelier return to the committee's 2% goal." Market participants are now factoring in a high probability of at least one more rate hike by year-end, with many expecting tighter monetary policy to extend into next year.
The central bank's updated projections forecast the policy rate rising to a range of 4.00%-4.25% by the end of this year, and maintaining that level through 2027. While the rate hike itself was expected, the market's focus has shifted to the Fed's forward guidance, which signals a continued hawkish stance to bring inflation under control.
