TL;DR — The Fed raised rates a quarter point to 3.75%-4% on September 16, its first hike since 2023, and the median official now sees 4.1% at the end of 2027, up from 3.6% in June. The 10-year Treasury yield topped 5%. AI builders now financing with debt pay that price.
The Federal Open Market Committee voted 12 to 0 on September 16 to raise the federal funds target range by a quarter point to 3.75%-4%. It was the first increase since 2023 and the first under Chairman Kevin Warsh, who took over in June. The statement said productivity growth is strong and capital investment is robust. For large-cap tech, that second phrase is the one to read closely, because the investment boom the Fed is describing is increasingly paid for with borrowed money.
The Fed Went From Three Dissents to a Unanimous Hike in Seven Weeks
On July 29 the Committee held rates at 3.5%-3.75% by a 9 to 3 vote, with Beth Hammack, Neel Kashkari and Lorie Logan dissenting in favor of a hike. In September nobody dissented. The July statement attributed part of inflation to supply shocks, including energy. The September statement dropped that wording and says only that inflation remains elevated.
Warsh’s press conference filled in the reasoning. He said total PCE inflation likely ran around 3.6% in August, with core PCE near 3.2%, and that inflation has been above target for more than five years. He also said he would be hard pressed to describe broad financial conditions as restrictive, and that the Committee widely shared that view. CNBC tied the summer inflation readings to higher oil prices after escalation in the U.S.-Iran war.
We flagged this shift after the summer meeting in our note on the Fed leaving the door open to a hike. The door is now open. The question is how far the Committee walks through it.
The Median 2027 Rate Forecast Rose Half a Point to 4.1%
The Summary of Economic Projections moved in one direction. Every rate projection through 2028 rose, and so did the growth forecast, while projected unemployment fell. Here are the medians, against June:
- Federal funds rate, end of 2026: 4.1%, up from 3.8%
- End of 2027: 4.1%, up from 3.6%
- End of 2028: 3.9%, up from 3.4%
- PCE inflation, 2026: 3.7%, up from 3.6%, with core at 3.4%, up from 3.3%
- Real GDP growth, 2026: 2.3%, up from 2.2%, with unemployment at 4.1%, down from 4.3%
The 2026 median implies one more quarter-point hike this year, and Reuters reported that 16 of 18 officials expect at least one more by year-end. The larger change is 2027. In June the median path had rates falling to 3.6%; in September it holds them at 4.1%. Higher growth and lower unemployment alongside higher rates describe an economy the Fed sees as running hot, not one it is trying to rescue.
Long Yields Hit a 2007 High as AI Spending Moves Onto the Bond Market
Markets took the message at the long end. The 10-year Treasury yield rose above 5%, its highest level since 2007, and the 2-year rose about 7 basis points to roughly 4.73%, according to CNBC and Reuters. The S&P 500 fell 1% and the Nasdaq 0.7% after the press conference.
That matters because the AI buildout is now financed partly in the bond and equity markets. In the second quarter of 2026, Alphabet issued $20.3 billion of senior notes and raised $49.6 billion in new equity, and Nvidia took in $24.9 billion of net debt proceeds in its quarter ended July 26. Oracle carried $125.3 billion of notes and other borrowings at August 31, plus $288 billion of data center lease commitments not yet on its balance sheet. S&P Global Ratings projects combined hyperscaler capex above $1.3 trillion by 2027, CNBC reported.
The Fed is raising rates in part because capital investment is robust. The companies leading that investment are increasingly paying for it with debt priced off those same rates.
The four largest spenders had already guided to roughly $700 billion of AI capex for 2026, as we tallied in our look at Big Four capex guidance, and two of them had negative free cash flow. Spending at that scale is less sensitive to a quarter point on the overnight rate than to the 10-year yield, which sets the pricing of long corporate bonds. That yield is now above 5%.
Warsh Created an AI Task Force, but the Hike Was About Prices
Asked about artificial intelligence, Warsh said the Fed cares about its effects on both demand and supply, and that a task force will report by the end of the year on the implications for policy. He declined to weigh in on AI risks, saying those decisions belong to other parts of the government. Asked whether AI-driven growth complicates the inflation fight, he said he did not believe the Fed needs to harm the labor market to reach its goal.
The read for big-tech investors is narrower than the headlines. Higher long rates raise the discount rate on cash flows that arrive years out, which is where most AI backlogs sit. They also raise the coupon on every new bond issued to build data centers. Neither changes the demand reported by Nvidia or Oracle, but both change what that demand is worth today.
What to watch next: the next FOMC decision, the September and October CPI reports, and the task force report due by year-end. Kay Haigh of Goldman Sachs Asset Management told CNBC her base case is one more hike in December, contingent on CPI and energy prices. In big tech, watch pricing on new hyperscaler bond deals and whether late-October earnings show any change in debt-funded capex plans.
Sources: the Federal Reserve’s September 16, 2026 statement, July 29, 2026 statement, Summary of Economic Projections and press conference transcript; Alphabet’s second-quarter 2026 earnings release, Nvidia’s July 2026 10-Q and Oracle’s August 2026 10-Q on SEC EDGAR; Alphabet Investor Relations; market coverage from CNBC and Reuters. Disclosure: the author is long Alphabet and has no position in Nvidia or Oracle. This article is not investment advice; see the About page for full disclosure.
