The Fed raised rates and signaled one more tightening by the end of 2026

The U.S. Federal Reserve raised the interest rate by 25 basis points. The regulator explained the decision as necessary to speed up the return of inflation to the target level. The Fed’s updated forecasts point to one more likely rate increase by the end of 2026.

The Fed continued its fight against inflation

The rate hike became the regulator’s first step toward additional tightening of monetary policy. Fed Chair Kevin Warsh cited three factors that, in the regulator’s view, required such a decision.

However, Freedom analysts consider two of the three reasons cited to be debatable. In their assessment, the Fed chair’s rhetoric looks more hawkish than the current economic situation and price dynamics.

No significant pressure on the economy is expected

Freedom does not expect the decision to have a clearly pronounced negative impact on economic activity. A 25-basis-point rate increase by itself should not lead to a noticeable deterioration in consumer demand or investment activity.

The analysts’ inflation forecast also remained unchanged. Starting from September 2026, the core personal consumption expenditures deflator, or Core PCE, is expected to average 0.22% month over month. Such a pace is close to the Fed’s inflation target.

The rate may rise once more by year-end

In updated projections, Fed officials indicated one more rate increase by the end of 2026 as the most likely scenario. Its implementation will depend on further dynamics of inflation, the labor market, and the U.S. economy.

Thus, the regulator remains hawkish, but the current inflation trajectory does not yet point to the need for a prolonged cycle of aggressive rate hikes. The next macroeconomic data will determine whether another step by the Fed will be the final one in the current tightening cycle.

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