The Fed Just Raised Rates — What It Means for Your Wallet
The Federal Reserve raised its main interest rate to a 3.75% to 4.00% range, its first increase under Chairman Kevin Warsh. New forecasts released with the decision put the rate at 4.00% to 4.25% by the end of 2026 and in 2027. Reuters When the Fed raises rates, savings accounts tend to pay a little more. Loans for homes, cars and credit cards tend to cost more.
This September increase had been planned ahead as Warsh's first hike as chair. Warsh does not like to tell the public where he thinks rates will go next. Reuters So investors had to read the official statement, the dot plot and his press conference for clues. The dot plot is simply a chart where each Fed leader puts a dot for where they think rates are headed.
On Aug. 28 at Jackson Hole, Warsh said the Fed is still aiming for 2% PCE inflation and that high prices should be its main focus. CNBC PCE is just the Fed's favorite way to track prices. He also said the Fed wants to figure out if hidden price pressure is "rising, falling, or stuck in place." Federal Reserve Stocks ended lower after he repeated that fight against inflation. Reuters
How prices are measured is now key to what the Fed does next. Core PCE inflation has long been the Fed's go-to measure. Warsh has called it a "rough swag." Core means prices without food and energy counted. WSJ
Warsh prefers two other tools: trimmed-mean and median inflation. Brookings Trimmed-mean throws out the biggest price jumps and drops each month. Median looks at the item right in the middle. It is like Olympic scoring, where the highest and lowest scores are tossed to be fair. Both try to ignore one-time spikes without always ignoring food and energy.
He liked these tools before becoming chair. Warsh has said inflation is a "choice." He set up five task forces to study how the Fed works. CNBC
The broader context here is more than a small rate step. The move was 25 basis points, and a basis point is one-hundredth of a percent. If the Fed focuses more on these new gauges, what counts is how many things are getting pricier, not just food and energy. Prices in the middle can stay stubborn even when the top-line number looks cooler. One or two wild items alone will not tell the story.
In my view, that makes clear talk the hard part. A chair who will not give much rate guidance but wants to fight inflation leaves markets guessing which price gauge will trigger the next move. The September dots point to 4.00%-4.25% by the end of 2026 and staying there in 2027. How much officials disagree, and which inflation number Warsh points to, will shape how strict that really is. Core PCE, trimmed-mean and median can point in different directions for months. Which one he talks about most will matter as much as the rate itself.
