US Federal Reserve Raises Rates to 3.75 to 4 Percent in First Hike Since 2023

The Federal Open Market Committee raised the target range for the federal funds rate by a quarter percentage point to 3.75 to 4.00 percent on 16 September 2026, the first increase in US policy rates since July 2023. The vote was unanimous at 12 to 0.

What changed

The new range takes the federal funds target up from 3.50 to 3.75 percent. The Board of Governors moved the administered rates in step, effective 17 September 2026: the interest rate paid on reserve balances rose to 3.90 percent, and the primary credit rate charged at the discount window rose by a quarter point to 4.00 percent. The standing overnight repurchase agreement facility is set at 4.00 percent and the standing overnight reverse repurchase facility at 3.75 percent, with a per-counterparty limit of 160 billion dollars a day. The Committee also directed continued rollover of maturing Treasury principal and reinvestment of agency security payments into Treasury bills.

The statement was blunt about the reason. "Inflation remains elevated," the Committee said, and "Today's policy action will support a timelier return to the Committee's 2 percent goal." On the real economy it recorded that "Economic activity is expanding at a solid pace" and that "Job gains have kept pace with the workforce, and the unemployment rate has changed little." It flagged that "uncertainty remains elevated owing, in part, to geopolitical developments."

The mechanism

Two separate votes produce a US rate move. The FOMC sets the target range and issues a directive to the Open Market Desk at the Federal Reserve Bank of New York, which is instructed to keep the effective federal funds rate inside that band. The Board of Governors then votes separately on the administered rates the Fed controls outright, the interest on reserve balances and the primary credit rate, which are the tools that actually pin the market rate to the band. Both votes on 16 September were unanimous.

The Summary of Economic Projections released alongside the decision points to more. The median projection for the federal funds rate at the end of 2026 is 4.1 percent, above the midpoint of the range just set, which implies at least one further quarter-point increase before year end. The median for end-2027 is also 4.1 percent and for end-2028 is 3.9 percent. Participants put median PCE inflation for 2026 at 3.7 percent and the median unemployment rate at 4.1 percent.

What it means for a foreign buyer

The federal funds rate does not set US mortgage rates. Thirty-year fixed mortgages are priced off the ten-year Treasury yield and the spread demanded on mortgage-backed securities, so the transmission is indirect and can run either way on the day. In practice, rates are already high: the average 30-year rate sat in the 7 percent range this week and topped 7 percent earlier in the week, before the decision.

For a foreign buyer financing a purchase through a US lender, the near-term effect is that the cost of debt stays where it is or goes higher, and the dot plot removes the case for waiting out a cut this year. Eric Orenstein, senior director at Fitch Ratings, said elevated rates will "certainly slow home purchases and mortgage refinancing through the rest of the year." Lawrence Yun, chief economist at the National Association of Realtors, said rates can fall once "oil prices retreat and with a credible plan to reduce the budget deficit," adding that "These developments are highly uncertain, at least in the upcoming months."

For a cash buyer the calculation is different, and most foreign buyers are cash buyers. The pullback in financed demand is what Bill Banfield, chief business officer at Rocket Mortgage, described as "a buyers' market in many metros, with inventory at a six-year high." Higher policy rates also tend to support the dollar, which raises the effective purchase price for anyone converting from a weaker currency, so the dollar leg of the trade can cancel out the pricing leg.

Context

The United States places almost no federal restriction on foreign ownership of residential property. There is no nationwide approval regime, no minimum investment and no residency condition on holding title, though a growing number of individual states restrict purchases near military installations or by nationals of specific countries, and a non-resident seller faces FIRPTA withholding.

Foreign demand was already falling before this move. National Association of Realtors data published on 29 July 2026 showed foreign buyers purchased 45.3 billion dollars of existing US homes in the twelve months to March 2026, down 19.1 percent from 56 billion dollars, across 67,100 properties, down 14 percent from 78,100. The median purchase price was 465,000 dollars. Forty-eight percent of international purchasers paid all cash, against 28 percent of all existing-home buyers. Canada was the largest source at 16 percent of purchases and 5.2 billion dollars, followed by Mexico at 14 percent and 5.0 billion dollars, China at 11 percent and 7.6 billion dollars, India at 9 percent and 3.7 billion dollars, and the United Kingdom at 4 percent and 1.2 billion dollars.

The move splits North American policy. The Bank of Canada held its policy rate at 2.25 percent while signalling it is ready to raise, and a Federal Reserve governor had signalled a September hike while US mortgage rates sat near 7 percent at the start of this month. That signal has now been acted on.