The Federal Reserve raised its benchmark interest rate again on September 16, moving it to a range of 3.75% to 4%. The vote was unanimous. For anyone with a mortgage, an auto loan, or a business line of credit, this means borrowing just got more expensive, and it is likely to stay that way for a while.
This was the first rate decision under new Fed chairman Kevin Warsh, who took office in May 2026 after a term that ended early for his predecessor. Warsh spent years at the Fed's Board of Governors in the mid-2000s and later worked in private investment, and he has been clear that his priority is restoring the Fed's credibility on inflation, calling the 2% inflation target a fixed goal rather than a flexible one.
The problem he is running into is that one interest rate cannot fix an economy running at two different speeds. Consumer prices rose 3.4% over the past year, still above target, and oil prices have climbed above 100 dollars a barrel due to the war with Iran. That gave Warsh cover to raise rates. But raising rates does not hit every part of the economy the same way.
Housing is taking the hardest hit. The average 30-year mortgage rate has climbed above 6.7%, and homeowners who locked in rates near 3% or 4% during 2020 and 2021 are refusing to sell or refinance. Instead of moving, many are taking out second mortgages to access cash while keeping their low original rate, a pattern that is freezing up the housing market and pushing more buyers into renting.
The other side of the economy looks completely different. Spending on AI data centers, chips, and related infrastructure has become one of the biggest engines of US growth, and by some estimates AI-related capital spending now equals roughly 5% of the entire economy while contributing nearly as much to growth as consumer spending itself. The four largest tech companies building this infrastructure are expected to spend well over 300 billion dollars this year alone. None of that spending slows down because the Fed adds a quarter point to short-term rates. The companies making these bets expect returns so large that a small rise in financing costs barely matters.
Making things harder, the government's own borrowing is pushing up the cost of money for everyone else. The national debt just passed 40 trillion dollars, having doubled in under a decade, and interest payments alone now consume close to a trillion dollars a year. That is a major reason the 10-year Treasury yield, which mortgage rates track closely, touched 5% this month for the first time since before the 2008 financial crisis.
The practical result is a lopsided economy. Traditional businesses and households face a real and lasting increase in the cost of capital. Businesses building AI infrastructure barely notice. If your business depends on affordable loans to grow, expect this gap to persist, not because the Fed is picking winners, but because it only has one lever and the AI investment boom does not respond to it.