Federal Reserve hikes rates as inflation risks outweigh employment concerns

The Federal Reserve just did something it hasn’t done in over three years: raise interest rates. The FOMC voted unanimously on September 16 to lift the federal funds rate by 25 basis points, pushing the target range to 3.75%-4.00%. It’s the clearest signal yet that the central bank views sticky inflation as a bigger threat than any cooling in the job market. Richmond Fed President Thomas Barkin put it plainly. The Fed raised rates because inflation risks outweigh employment risks. The numbers behind the decision Headline PCE inflation currently sits at 3.7%, with core PCE at 3.4%. Both figures remain well above the Fed’s 2% target. On the employment side, the unemployment rate projection was revised lower to 4.1%, suggesting a labor market that’s still holding up. That durability gave policymakers the confidence to tighten, reasoning that workers can absorb higher rates without triggering a painful downturn. The Summary of Economic Projections paints a cautiously optimistic picture. Growth forecasts were upgraded, and the median dot plot suggests the federal funds rate could reach 4.1% by the end of 2026. In fact, 16 of the 18 FOMC participants expect at least one more 25 basis poi...