Fed raises rates a quarter point, 12-0; officials see 4.1% by year-end
The FOMC lifted its target range to 3.75% to 4.00%, its first increase since 2023, and the median official projects a higher rate by December. Mortgage rates were already near a 15-month high going in.
By American Policy WireFiled
The bottom line The Fed's first hike in three years, with a median official penciling in a higher rate by December, makes it harder to argue that mortgage rates near 7% will ease soon.
“Today’s policy action will support a timelier return to the Committee’s 2 percent goal.” With that line, the Federal Reserve on Wednesday raised its benchmark rate a quarter point, to a range of 3.75% to 4.00%, on a unanimous 12-0 vote [1].
Why it matters: It is the Fed’s first increase since July 2023, Real Estate News noted, and it comes with mortgage rates already at their highest in more than a year [7, 5]. The Fed does not set mortgage rates directly, but a central bank that is raising, rather than cutting, removes one reason to expect relief for buyers this fall.
How we got here: In July the committee held, with three officials voting for a hike, as we reported then. At Jackson Hole in August, Chair Kevin Warsh set a test: the Fed had to be confident that inflation was falling “clearly and at sufficient speed” (our coverage) [4]. On Wednesday he told reporters that standard “has not been satisfied” [4].
By the numbers
- 3.75% to 4.00%: The new federal funds target range, up from 3.50% to 3.75% [1].
- 3.90%: The new interest rate on bank reserves, and 4.0% for the discount window’s primary credit rate, both effective Thursday [2].
- 4.1%: The median official’s projected federal funds rate for the end of 2026 and again for 2027, up from 3.8% and 3.6% in June [3].
- 3.7% and 3.4%: The median projections for 2026 PCE and core PCE inflation, each a tenth higher than in June [3].
- 6.76%: Freddie Mac’s 30-year fixed average on Sept. 10, up from 6.71% a week earlier and 6.35% a year earlier [5]. The last reading that high was 6.77% on June 26, 2025 [6].
What did Warsh say about housing and rates? Little about housing directly. He said “inflation is too high and has been for too long” and estimated, from recent CPI and PPI data, that PCE inflation “likely was around 3.6 percent in August” [4]. He described the hike as removing “a dose of accommodation” because he and his colleagues were hard pressed to call financial conditions restrictive [4].
Asked about the next move, he repeated: “I’m not in the forward guidance business” [4]. Pressed on why long-term Treasury yields have risen, he listed economic strength, competition for capital from heavy business investment, and geopolitics [4]. Those long-term yields are what mortgage rates track most closely. Real Estate News reported that the 10-year Treasury yield hit a 19-year high earlier this week, pushing daily 30-year mortgage rates above 7% [7].
The Fed’s own projections lean toward more tightening. Real Estate News read the dot plot as most officials expecting at least one more increase this year [7]. The median unemployment projection for 2026 fell to 4.1% from 4.3% in June [3].
What it means for buyers and owners
- This week’s survey predates the decision. The 15-year fixed averaged 6.09% on Sept. 10, against 5.50% a year earlier [5].
- Industry economists expect rates to stay high. NAR chief economist Lawrence Yun said “Expect 7% as the new normal,” RISMedia reported [8].
- Buyers may have more room to bargain. Rocket Mortgage’s Bill Banfield told Real Estate News that inventory is at a six-year high, with “plenty of room to negotiate” [7].
- Mortgage bonds keep running off. The Fed will keep reinvesting principal from its agency holdings into Treasury bills rather than new mortgage-backed securities [2].
What’s next: The FOMC meets again Oct. 27-28, and its last 2026 meeting is Dec. 8-9 [9]. Freddie Mac’s Thursday survey will be the first weekly average taken after the hike [5].
The other side: Bright MLS chief economist Lisa Sturtevant called the hike “a harsh headwind for a housing market that is already losing momentum,” saying it “all but guarantees” mortgage rates stay at or above 7% [8]. Reporters pressed Warsh on the argument that inflation driven by energy prices and tariffs is a supply shock rate increases cannot fix. “We cannot affect any individual price,” he answered, but the Fed can make sure relative price changes “don’t broaden out” [4]. Others in the industry saw the move as needed: William Raveis Mortgage’s Melissa Cohn said that had the Fed held, Warsh “risked losing credibility” [7].
Q&A Quick answers
- Q1Did the Fed raise interest rates in September 2026?
- Yes. On Sept. 16 the FOMC voted 12-0 to raise the federal funds target range by a quarter point, to 3.75% to 4.00% [1].
- Q2Will mortgage rates go up after the September 2026 Fed hike?
- The Fed does not set mortgage rates, and they had already climbed before the vote: Freddie Mac's 30-year average was 6.76% on Sept. 10 [5]. NAR's Lawrence Yun told Real Estate News that 30-year rates may stay in the 7% range for a while [7].
- Q3Will the Fed raise rates again in 2026?
- Warsh declined to say, telling reporters he is "not in the forward guidance business" [4]. The median official projects a 4.1% rate at the end of 2026, above the new range's 3.875% midpoint [3].
- Q4When is the next Fed meeting after September 2026?
- The FOMC's schedule lists Oct. 27-28 and Dec. 8-9 as the remaining 2026 meetings [9].
- Q5Is the Fed still shrinking its mortgage-backed securities?
- Yes. The New York Fed's trading desk will keep reinvesting principal payments from agency securities, which include mortgage bonds, into Treasury bills [2].