Posted Sep 17, 2026 by Martin Armstrong

The Federal Reserve has raised interest rates for the first time in three years, increasing the federal funds target by 25 basis points to 3.75%–4.00%. The significance is not the quarter-point move itself. The Fed spent 2025 cutting rates only to turn around and raise them again because inflation never vanished as the academics expected. Chairman Kevin Warsh says the move demonstrates the Fed’s commitment to returning inflation to its seemingly impossible 2% target, and the FOMC voted unanimously for the increase. They still cling to this theory that they can steer an $30 trillion economy by moving one interest rate up and down.

Even the Fed admits economic activity continues to expand at a “solid pace,” domestic spending remains resilient, productivity growth is strong, capital investment remains robust, and unemployment has changed little. This is precisely the problem with trying to manage an economy as if it were some laboratory experiment. People do not stop living because twelve people in Washington change the federal funds rate by 25 basis points.

The 10-year Treasury yield moved to around 5% following the decision while mortgage rates were already approaching 7%. THAT is where the pain becomes real. Housing affordability is already a disaster, borrowers are paying punishing rates, businesses face higher financing costs, and Washington must continually refinance an enormous national debt at rates dramatically above those of the previous decade. The politicians loved artificially low rates because they could borrow endlessly and pretend there would never be a bill.

Now the bill is arriving. The contradiction is that government desperately wants lower rates because it is the largest borrower in the entire economy. Washington has accumulated so much debt that rising interest rates threaten the budget itself, yet the government continues borrowing regardless of the cost because nobody in Congress has any intention of balancing anything. They spend first, borrow whatever is necessary, and then blame the Federal Reserve when the cost of servicing their own debt explodes.

The Fed Is Raising Rates | Armstrong Economics