Washington, D.C. — Federal Reserve officials signaled they expect to raise interest rates once more this year after increasing borrowing costs on Wednesday, according to updated projections released after the central bank’s latest policy meeting.
The Fed raised its target federal funds rate by a quarter percentage point to a range of 3.75%-4.00%. While the move had been widely expected, the new projections indicated that policymakers still anticipate another rate increase before the end of 2026.
Officials also indicated that inflation could remain elevated for longer than previously expected. Their median forecast for inflation, measured by the Personal Consumption Expenditures Price Index, rose to 3.7% for 2026 from 3.6% in the June projections.
For 2027, policymakers maintained their PCE inflation forecast at 2.3%. Their projection for 2028 increased to 2.1% from 2.0%, while officials now expect inflation to reach the Federal Reserve’s 2% target in 2029.
The latest outlook marks a shift from the projections issued in June. At that time, Fed officials had anticipated one quarter-point rate increase in 2026, followed by a quarter-point reduction in 2027.
The central bank also increased its estimate of the longer-run federal funds rate to 3.2%, up from 3.1%.
Inflation has become more challenging for policymakers as energy costs have increased amid the war in the Middle East. Rising energy prices have heightened concerns that inflation could stay above the Fed’s target for longer than previously anticipated.
Fed Chair Kevin Warsh said after the meeting that inflation risks were tilted to the upside.
Economic growth expectations remained relatively strong. The Fed’s median forecast for U.S. gross domestic product growth in 2026 rose to 2.3%, compared with 2.2% in June. Growth was projected at 2.4% for 2027.
Officials expected the unemployment rate to remain at 4.1% at the end of 2026 and stay at that level through 2029. The unemployment rate was 4.1% in August.
The Fed’s so-called dot plot showed that 16 of the 18 policymakers who submitted interest-rate projections anticipated another increase this year, while two expected rates to remain unchanged.
The projections do not ensure that another rate increase will take place. Future decisions will continue to depend on economic conditions, particularly incoming inflation and employment data.
Warsh also stressed that the projections were not his personal forecasts. He said they reflected the forecasts of his colleagues and that he did not intend to provide forward guidance.
The latest projections nonetheless show that inflation remains a major concern for the central bank even after Wednesday’s rate increase.
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