The Fed Just Raised Rates for the First Time Since 2023. Here's What I'm Watching.

What the Fed actually did

The Federal Reserve sets a target for something called the federal funds rate. That's the interest rate banks charge each other for overnight loans. You'll never borrow at that rate yourself. But it's the starting point that a lot of other rates key off of.

When the Fed raises that target, borrowing gets a little more expensive across the system. Banks pay more to borrow, so they charge more to lend. And they also tend to pay a little more on deposits.

So on September 16, the target went from a range of 3.50% to 3.75% to a range of 3.75% to 4%. A quarter point. On its own, a quarter point isn't much. What matters more is the direction, and what the Fed is signaling about where it goes next.

Why the Fed raised rates

The short answer is inflation. Prices are still climbing faster than the Fed wants.

The Fed's goal is 2% inflation. In August, inflation ran at 3.4% over the past year. A big piece of that came from energy. Gasoline was up about 27% from a year earlier, mostly because of the conflict in the Middle East and disruptions to oil shipping.

Now, there's a detail here worth knowing. If you strip out food and energy, you get what's called core inflation. Core inflation in August was 2.4%, the lowest since early 2021. So you might ask, if core inflation is cooling, why raise rates at all?

The Fed's answer, more or less, is that it doesn't want high energy prices to spread into everything else. When gas and diesel stay expensive for long enough, shipping costs more, groceries cost more, airfare costs more, and businesses start raising prices across the board. Fed Chair Kevin Warsh said this summer's inflation readings didn't show him that underlying trends had meaningfully improved.

In plain terms: the Fed can't pump oil, but it can try to keep an oil shock from turning into a permanent price problem.

The other part of the picture is that the economy has been holding up. Unemployment is around 4.1%, businesses are still hiring, and consumer spending has been strong. When the economy is strong, the Fed has more room to tighten without breaking anything. At least, that's the bet.

A quick look back at how we got here

It helps to zoom out for a second, because this hike makes more sense when you see the whole path.

In early 2022, the Fed's rate was sitting near zero. Inflation was running hot coming out of the pandemic, and the Fed started raising rates quickly. By July 2023, it had pushed its target range up to 5.25% to 5.5%. That was one of the fastest hiking cycles in decades.

Then inflation started to come down. In the fall of 2024, the Fed began cutting, and it kept cutting into 2025. The story most people heard was that the hard part was over and rates would keep drifting lower.

This year, the Fed held steady at its first five meetings. Then energy prices jumped, inflation stopped falling, and the Fed reversed course in September.

So if it feels like the ground keeps shifting, that's because it has. And that's exactly why I'm careful about anyone who speaks with certainty about where rates go next. Two years ago, almost nobody expected a hike in 2026.

What the "dot plot" says about what's next

Four times a year, the Fed releases a chart where each official puts a dot showing where they think rates should be. People call it the dot plot.

The September dot plot showed 16 of 18 participants expecting at least one more rate increase this year. That doesn't mean it will happen. The dots are forecasts, and the Fed's forecasts change all the time. But it tells you the committee is leaning toward tighter, not looser.

The next Fed meeting is in late October. Between now and then, we'll get more inflation data and more jobs data. Those numbers will do more to decide the next move than anything anyone says on TV.

What changes for you

Let's get practical. Here's how a Fed hike tends to show up in a household.

Credit cards

Most credit cards have variable interest rates. That means the rate can change over time, and card rates tend to move along with the Fed. You don't usually get a phone call. Your statement just starts showing a slightly higher rate.

The average interest rate on credit card accounts that actually charge interest was about 22% in the second quarter of this year. That was before this hike.

Let's say you carry a $5,000 balance. A quarter point increase adds roughly $12.50 a year in interest. That's not the number to lose sleep over. The 22% is. At that rate, carrying $5,000 costs somewhere around $1,100 a year in interest before any hike at all.

So if you carry a balance, the hike is a good reminder, not a crisis. The real issue was already there.

Savings accounts, money market funds, and CDs

This is the good side of a rate hike, and it gets less attention than it deserves.

High-yield savings accounts and money market funds usually adjust their rates in the weeks after a Fed move. CDs don't change once you open them, but new CDs tend to be offered at rates that reflect the current environment.

Here's what I see all the time. People keep their emergency fund, or cash they're holding for a purchase, in a regular checking or savings account at a big bank that pays close to nothing. Meanwhile, other accounts are paying meaningfully more on the same money, with the same FDIC protection.

It's worth ten minutes to look at what your bank is actually paying you. If it's close to zero, that's money left on the table every month.

Variable-rate loans

If you have a loan where the rate floats, your payment can go up. That includes:

• Home equity lines of credit, or HELOCs
• Adjustable-rate mortgages after their fixed period ends
• Some personal loans and business lines of credit

Fixed-rate loans don't change. If you have a fixed-rate mortgage or a fixed-rate car loan, your payment stays the same no matter what the Fed does.

Car loans

New car loans are priced based on a mix of things, including the Fed's rate and the lender's own costs. When rates go up, new auto loans tend to get a little more expensive. If you already have a fixed-rate car loan, nothing changes.

Federal student loans

If you have existing federal student loans, your rate is fixed. The Fed's decision doesn't change it. Rates on new federal student loans are set once a year using a formula tied to the 10-year Treasury, which I'll get to in a second.

The part a lot of people get wrong: your mortgage rate

The Fed does not set your mortgage rate.

I know that sounds backwards, because every time the Fed moves, you hear about mortgages. But the 30-year mortgage rate follows the 10-year Treasury yield much more closely than it follows the Fed's overnight rate. And the 10-year Treasury moves based on what investors expect from inflation, economic growth, and government borrowing over a much longer stretch of time.

Sometimes the Fed and the 10-year move together. Sometimes they don't. Right now, they're moving the same way.

This week, the 10-year Treasury yield hit about 5.1%. That's the highest level since 2007. And the average 30-year fixed mortgage rate climbed to 7.03%, the first time it's been above 7% since January 2025.

So here's the practical takeaway. If you're waiting for the Fed to bring mortgage rates down, understand that it doesn't work like a dial. The Fed could stop raising rates tomorrow, and mortgage rates could stay high anyway if investors are still worried about inflation or the size of government debt. And the reverse is true too. Mortgage rates can sometimes fall even while the Fed is holding steady.

I wrote a separate post on mortgage rates crossing 7%, and what that means if you're thinking about buying, selling, or refinancing.

What rising rates mean for bonds

This part matters for a lot of retirement accounts, so I want to slow down on it.

When interest rates go up, the price of existing bonds goes down. That's not a flaw. It's just how bonds work.

Let's say you own a bond that pays 4% a year. Then rates rise, and new bonds start paying 5%. Nobody wants to pay full price for your 4% bond when they can buy a new one paying 5%. So the price of your bond drops until it's roughly as attractive as the new ones.

That's why bond funds can lose value when rates rise, even though bonds are considered safer than stocks. The longer the bond's maturity, the bigger that price swing tends to be.

But there's another side to it. New money going into bonds now earns higher yields than it has in years. If you're adding to a bond fund, or if bonds in your fund are maturing and being replaced, the income coming off those bonds goes up over time.

So rising rates are painful in the short run for existing bond prices and helpful in the long run for future bond income. Which one matters more depends on your time horizon and what you're using the money for.

What doesn't change for FRS members

A lot of the people I work with are in the Florida Retirement System, so I want to be specific here.

If you're in the FRS Pension Plan

Your pension benefit is calculated by a formula based on your years of service, your average final compensation, and your class. It's not tied to the stock market or to interest rates. A Fed hike doesn't change your pension benefit.

If you're in DROP

The interest your DROP account earns is set by law, not by the market. So the Fed's decision doesn't change your DROP interest rate either. What it may change is what your money can earn after it leaves DROP, depending on where it goes next.

If you're in the FRS Investment Plan

The Investment Plan works more like a 401(k) or 457. Your balance moves with the investments you hold. So rising rates can affect it, especially through any bond funds you own. The pension formula doesn't apply here, which is why it's worth knowing what's actually inside your account.

If you have a 457 plan

Same idea as the Investment Plan. Your balance depends on your investments. If you hold bond funds or a target-date fund, part of your account is sensitive to interest rates.

If you're getting close to retirement

Rate changes land differently when you're a few years from retirement, so I want to say a word to that group specifically.

When you're working and adding money every month, short-term swings in bond prices don't matter much. You're buying at whatever price the market gives you, and you have years for things to settle.

When you're about to start living off your savings, timing matters more. If you'll need to pull money out in the next few years, it's worth knowing where that money is sitting and how sensitive it is to rate changes. Money you'll need soon generally belongs in places that don't swing much. Money you won't touch for ten years or more can afford to ride out the ups and downs.

The other side of it is good news. If you're about to retire with a chunk of cash, whether that's savings, a DROP payout, or proceeds from selling something, higher rates mean safer places to hold that money are paying more than they have in a long time. That can take some pressure off the rest of your plan.

None of that is a reason to make a sudden move. It's a reason to know which of your dollars have which job.

What I'm watching from here

I'm not going to predict where rates go. But here's what I'm paying attention to over the next couple of months.

1. Oil

Energy is driving a big share of the inflation problem right now. Brent crude has been trading above $100 at times this month, and diesel prices have hit records. If oil prices settle down, the pressure on the Fed eases. If they don't, the Fed has more reason to keep going.

2. The next two inflation reports

The Fed has made it clear that it's watching the data, not a calendar. The September and October inflation reports will say a lot about whether another hike comes before year-end.

3. The 10-year Treasury

Like I said, this is the rate that touches mortgages, car loans, and the bonds inside a lot of retirement accounts. It's been climbing for months. Where it goes next matters more to most households than the Fed's overnight rate.

4. Jobs

If the job market stays strong, the Fed has room to keep tightening. If hiring slows sharply, that changes the conversation fast.

What I'm not going to do

I'm not going to tell you where rates will be in six months. Nobody knows that. The Fed doesn't know it either, which is why its own projections change every quarter. Anyone who says they know is guessing with confidence.

I'm also not going to tell you to rush and do anything. A rate hike isn't a reason to panic, sell everything, or rebuild your whole plan.

What I will say is this. When rates change direction, it's worth taking fifteen minutes to check three things:

1. What you owe at a variable rate. Credit cards, HELOCs, anything that floats. That's where a rate hike hits you directly.
2. Where your cash is sitting. If your emergency fund is earning close to nothing, that's worth fixing.
3. Whether your plan still holds up if rates stay here. Not if they go to 10% or back to zero. Just if they stay about where they are for a while.

When it comes down to it, you can't control what the Fed does. You can control how exposed you are to it.

The short version

• The Fed raised its target range by a quarter point, to 3.75% to 4%, on September 16, its first hike since 2023.
• The reason is inflation, especially energy prices.
• Credit card rates and variable-rate loans tend to follow the Fed. Fixed-rate loans don't change.
• Savings accounts and money market funds usually pay more after a hike.
• Mortgage rates follow the 10-year Treasury more than the Fed. The 30-year just crossed 7%.
• Rising rates push existing bond prices down but raise the income on new bonds.
• FRS pension benefits and the DROP interest rate aren't affected by the Fed.

If you'd like to talk through how this fits your own situation, whether that's your pension, your DROP payout, or cash you're sitting on, I'm always glad to have that conversation.

Frequently asked questions

Why did the Fed raise interest rates in September 2026?

The Fed raised rates because inflation has stayed above its 2% goal, running at 3.4% in August, with energy prices a major driver. The Fed is trying to keep higher energy costs from spreading into broader price increases.

How much did the Fed raise rates?

The Fed raised its target for the federal funds rate by a quarter of a percentage point, to a range of 3.75% to 4%.

Does a Fed rate hike raise my mortgage rate?

Not directly. Existing fixed-rate mortgages don't change. New 30-year mortgage rates follow the 10-year Treasury yield more closely than the Fed's rate. Right now both are rising, and the average 30-year rate is just above 7%.

Will my savings account pay more after the Fed raises rates?

Often, yes. High-yield savings accounts and money market funds usually adjust in the weeks after a Fed move. Rates vary by bank, so it's worth checking what yours actually pays.

Does the Fed rate hike affect my FRS pension or DROP?

No. The FRS Pension Plan benefit is calculated by formula, and the DROP interest rate is set by law. Investment Plan and 457 balances can be affected, since they depend on the investments you hold.

Will the Fed raise rates again in 2026?

Most Fed officials projected at least one more increase this year, but that's a forecast, not a promise. Upcoming inflation and jobs data will decide it. The next meeting is in late October.

Educational content only. Not individualized investment, tax, or legal advice. Past performance does not guarantee future results. Benowitz Wealth Management is a brand of Joy Financial Group LLC, a Florida state-registered investment adviser.

Neither Joy Financial Group LLC nor Benowitz Wealth Management is affiliated with, endorsed by, or employed by the Florida Retirement System, the Florida Division of Retirement, the State Board of Administration of Florida, MyFRS, or any government agency. FRS members may obtain free, unbiased guidance from the MyFRS Financial Guidance Line at 1-866-446-9377.