Fed raises rates to 4% in first hike since 2023 as inflation remains elevated

The Federal Reserve raised interest rates by 25 basis points on Wednesday, taking the federal funds rate to a range of 3.75% to 4% as policymakers moved to bring elevated inflation back toward the central bank’s 2% target.

The move marked the Fed’s first rate increase since July 2023, when policymakers raised rates by 25 basis points to a range of 5.25% to 5.50%. The central bank later began cutting rates in September 2024 before bringing the target range down to 3.50% to 3.75% by the end of 2025.

The Federal Open Market Committee approved Wednesday’s increase unanimously in a 12 to 0 vote. The Fed said inflation remains elevated and that the policy action would support a timelier return to its 2% goal.

The decision was largely expected by markets. Hours before the announcement, the CME FedWatch Tool showed roughly an 88% probability of a 25 basis point increase. Markets were also pricing around a 54% chance that rates would remain at 3.75% to 4% following the Fed’s October meeting.

Bitcoin traded near $75,500 before the announcement, down roughly 5% since the start of the week after the Senate failed to advance the CLARITY Act on Tuesday.

The move had already weighed across the broader crypto market. Ethereum was down more than 8% since Monday and traded near $2,380 before the Fed announcement, while Solana was near $96. XRP traded around $1.26 after falling roughly 15% since Monday.

Bitcoin began surging following the Fed release, climbing above $76,000 as markets signaled that the rate increase had largely been priced in. Other major crypto assets also advanced on the news, with Ethereum, Solana and XRP each rising more than 1% following the announcement.

Pressure was also visible across traditional markets ahead of the decision. The 10 year Treasury yield climbed above 5% on Tuesday, its highest level since 2007, before easing toward 4.95% on Wednesday. The S&P 500 and Nasdaq were both down roughly 2% from their early September levels.

Precious metals also retreated as yields climbed. Gold was down roughly 3.5% from early September levels before the announcement, while silver had fallen around 4%.

Despite the inflation concerns, the Fed described economic activity as expanding at a solid pace. Policymakers said domestic spending remained resilient, productivity growth was strong and capital investment was robust. Job gains have also kept pace with growth in the workforce, while the unemployment rate has changed little.

The focus now turns to how long the Fed plans to keep rates at the higher level and whether persistent inflation could require additional increases. Before Wednesday’s decision, futures pricing suggested markets remained divided over another move at the October meeting.