Fed Meeting Recap: Higher Rates, Stronger Growth

The Fed Delivers a Rate Hike

The Federal Reserve raised the federal funds target range by 25 basis points to 3.75%–4.00% at its September meeting, marking the first rate increase in more than three years.¹ The decision was unanimous and largely anticipated by markets, but the more important message came from the Fed’s updated projections and commentary around the path of policy.

The latest dot plot showed a meaningful shift toward a higher-for-longer interest-rate environment. Sixteen of the 18 officials who submitted forecasts expect at least one additional rate increase before the end of 2026, while four see the potential for two more hikes.² The median projection for the federal funds rate at year-end 2026 moved up to roughly 4.1%, from 3.75% in June. Beyond 2026, the median forecast calls for rates to remain around 4.1% through 2027 before gradually moving lower in subsequent years.³

The change in expectations reflects a Fed that remains focused on inflation risks even as economic growth continues to hold up. Fed Chair Kevin Warsh emphasized that the latest move was driven by a combination of stronger economic activity, inflation that has not improved as quickly as hoped, and elevated geopolitical risks. Rather than responding to any single economic report, the Fed appears focused on preventing higher energy and other input costs from becoming more persistent inflation.

Importantly, the Fed’s latest communication does not suggest that policymakers believe the economy is deteriorating. Instead, the committee continues to describe economic activity as solid, with resilient domestic spending, strong productivity, and robust capital investment. That distinction is important for investors: rates are moving higher because the Fed sees inflation risks that require attention, not because it believes the economy is falling into a recession.

Economic Growth Remains a Key Positive

The Fed’s economic projections reinforce the idea that the U.S. economy continues to have meaningful momentum. The committee raised its forecast for real GDP growth in 2026 to 2.3%, from 2.2% previously, and lifted its 2027 estimate to 2.4% from 2.3%. Both forecasts remain above the Fed’s estimate of roughly 2% long-run potential growth.⁴

The labor market is also holding up better than the rate path might suggest. The Fed noted that job gains have generally kept pace with the growth of the workforce and that the unemployment rate has changed little. The latest weekly jobless claims report came in at 196k below estimates of 207k and last week’s 206k.⁵

There are several important sources of strength behind the current expansion. Productivity growth remains strong, while business investment continues to benefit from significant spending on technology, infrastructure, and artificial intelligence. The Fed specifically highlighted robust capital investment, and Chair Warsh pointed to the increased demand for capital associated with large technology companies and the broader investment cycle as one factor contributing to higher bond yields. Additionally, the Atlanta Fed Tracker is now at 5.1% for the quarter,⁶ and we just had a strong retail sales report coming in at 1.2% versus estimates of 0.8%. On top of the retail sales control group, which feeds directly into GDP, was up 1.4%, nearly double expectations.⁷

Most importantly, Barclays hosted its annual bank conference, where the common theme across the industry was a strong economy, healthy credit quality, and a resilient consumer. M&T Bank specifically noted that the economy remains strong across all fronts, reinforcing the broader message coming from the banking sector.⁸

That backdrop gives the economy some room to absorb moderately higher interest rates. While higher borrowing costs can weigh on interest-sensitive areas such as housing and certain areas of business investment, a growing economy, healthy consumer spending, and solid corporate earnings can help offset some of that pressure. The latest Fed projections suggest policymakers see continued growth even as monetary policy becomes somewhat more restrictive.

Inflation Remains the Fed’s Primary Concern

The biggest challenge remains inflation. The Fed raised its projection for 2026 headline PCE inflation to 3.7%, up slightly from 3.6% previously, while the median forecast for core inflation moved to 3.4% from 3.3%.⁹ The committee continues to expect inflation to move back toward its 2% objective over time, but the latest projections indicate that the process may take longer than previously expected.

Energy prices have been an important contributor to the recent inflation pressure, particularly as geopolitical developments have disrupted expectations around the global supply of oil. The Fed is therefore attempting to balance two competing forces: an economy that remains resilient and an inflation rate that is still above its target. Its latest decision reflects a desire to keep inflation expectations anchored before temporary price pressures become more persistent.

Ultimately, the Fed meeting reinforces the importance of staying focused on the fundamentals. Rates are higher, inflation remains above target and another hike is possible before year-end. At the same time, economic growth is holding up, the labor market remains relatively healthy, productivity is improving, and capital spending remains strong. For long-term investors, we believe that combination supports continuing to focus on quality companies with strong balance sheets, durable earnings, and the ability to perform through a higher-rate environment.

Sources:

1. Bloomberg: As of September 16, 2026 ↩︎
2. Bloomberg: As of September 16, 2026 ↩︎
3. Bloomberg: As of September 16, 2026 ↩︎
4. Bloomberg: As of September 16, 2026 ↩︎
5. Department of Labor: As of September 17, 2026 ↩︎
6. Federal Reserve Bank of Atlanta: As of September 17, 2026 ↩︎
7. Bloomberg: As of September 16, 2026 ↩︎
8. M&T Bank at Barclays Global Financial Services Conference: As of September 16, 2026 ↩︎
9. Bloomberg: As of September 16, 2026 ↩︎

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