Fed hikes rates in search of 'timelier' drop in inflation, sees more tightening ahead

The dollar rose against the euro after the Fed's announcement, while U.S. Treasury bond yields held largely steady, having already weakened in anticipation of the hike. After hitting a 19-year high above 5% on Monday, the benchmark 10-year Treasury yield US10YT=RR was trading at 4.958%, compared to 4.946% just prior to the announcement. The 30-year bond yield US30YT=RR dipped to 5.312% after trading at 5.327% just before the announcement. Stocks were mostly higher, with the S&P 500 index .SPX up 0.3% and the Nasdaq Composite .IXIC up 0.7%. Market bets on a rate hike at the Fed's next meeting in late October ticked higher to 56.5% from 54% prior to the hike, according to CME Group's FedWatch Tool. Policymakers' new quarterly economic projections marked up estimates of inflation, as measured by the Personal Consumption Expenditures Price Index, to 3.7% versus the 3.6% projected at the Fed's June meeting. Inflation is not projected to return to the 2% target until 2029, a year later than previously expected. Economic growth was marked up slightly from 2.2% to 2.3%, while the unemployment rate is seen ending the year at 4.1%, versus the 4.3% projected in June. New policy projections showed 16 of 18 policymakers anticipate at least one more quarter-percentage-point hike by the end of this year, with only two of them seeing rates remaining stable from here. Warsh apparently again did not submit a rate projection. The Fed's new policy statement and economic projections show a central bank opening the door on tighter monetary policy through next year, with the policy rate rising to the 4.00%-4.25% range by the end of this year and ending 2027 at the same level. "Today's policy action will support a timelier return to the Committee's 2% goal," the central bank said in its policy statement after the end of a two-day meeting. WASHINGTON, Sept. 16 (Reuters) - The Federal Reserve raised interest rates on Wednesday and flagged further increases in borrowing costs in coming months, with new U.S. central bank chief Kevin Warsh joining a unanimous decision that effectively acknowledges the Trump administration's inability so far to control inflation. While President Donald Trump had promised to lower prices on his watch, the combined impact of his global import tariffs, an energy shock following the start of the U.S.-Israeli war with Iran, and capital spending from the artificial intelligence boom has kept price pressures intense enough that the Fed felt it needed to raise its benchmark overnight interest rate by a quarter of a percentage point to the 3.75%-4.00% range. Federal Reserve Chairman Kevin Warsh said in a press conference following the Fed meeting that when it came to lifting rates, "inflation remains elevated. Today's policy action will support a timelier return to the committee's 2% goal." He added, "I would be hard pressed to describe broad financial conditions as restrictive. This view was widely shared by the committee, so we removed a dose of accommodation." While the statement withheld any forward guidance about coming policy decisions, as is Warsh's preference, the decision is likely to ease doubts that the Fed chief would hold off on tighter policy out of deference to Trump, a lingering question during his first months in office. The statement dropped a previous reference attributing current elevated inflation to "supply shocks," particularly in the energy sector, a nod to concerns among policymakers, including Warsh, that price pressures were too broad for comfort. Warsh is scheduled to hold a press conference beginning at 2:30 p.m. EDT (1830 GMT) to elaborate on the decision.

Fed hikes rates in search of 'timelier' drop in inflation, sees more tightening ahead

Markets and forecasts react

New projections point to another hike

Fed raises rates and signals more tightening

Warsh defends the decision at press conference

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