The U.S. Federal Reserve (Fed) decided today, as expected, to raise the target range for the federal funds rate by 0.25 percentage point, bringing it to 3.75% – 4%.
The Fed also lowered its unemployment rate forecast for 2027 to 4.1%, down from 4.3% previously, while raising its growth forecast for the U.S. economy for 2026 to 2.3%, from 2.2% previously.
“Inflation remains elevated. The monetary policy decision taken today will contribute to a quicker return to the Committee’s 2% target. The Committee will ensure price stability,” the Fed said.
and adding that “economic activity is advancing at a solid pace. Although uncertainties remain high, notably due to geopolitical developments, domestic spending has shown resilience.”
The Fed noted that productivity growth is solid and capital investment remains robust. Job creation has kept pace with the growth of the labor force, while the unemployment rate has changed little.
A rise in U.S. rates can trigger capital outflows and a depreciation of currencies against the dollar. This could impact oil-importing countries and dollar-denominated goods because a stronger dollar increases the cost of imports in local currency.
Moreover, high rates make dollar-denominated bonds and investments more attractive relative to risky assets, which can weigh on equities and emerging-market economies.
In the immediate term, U.S. stocks mostly rose on Wednesday thanks to a rebound in the technology sector, while markets assessed how the economy will fare with the Federal Reserve’s rate hike.
