The Fed Raises Interest Rates for the First Time in Three Years: What the September 16 Decision Means for Switzerland

The US Federal Reserve is increasing the key interest rate by 25 basis points to a range of 3.75 to 4.00 percent. It is the first rate hike since July 2023 and the first tightening under the new chairman Kevin Warsh. As recently as July, consensus in the Open Market Committee was crumbling, but now the decision was unanimous. And the central bank makes it clear: this is unlikely to be the last step. What this means for the capital markets and for Swiss mortgages.

The hawks have prevailed

Anyone who followed the Fed decision in July could see the turnaround coming. Back then, the Open Market Committee (FOMC) kept the key interest rate at 3.50 to 3.75 percent, but three regional Fed presidents voted against the majority and already called for a hike. There had not been that many dissenting votes in one direction for years.

Two months later, the minority became the majority. The FOMC decided with a 12-0 vote to raise the target range for the Federal Funds Rate by a quarter percentage point to 3.75 to 4.00 percent. The deciding factor was the latest inflation figures: US consumer prices rose by 0.4 percent in August compared to the previous month, with annual inflation at 3.4 percent—well above the 2 percent target.

The language of the communiqué is striking. It is even shorter and more direct than the previous statements under Warsh. The economy is growing solidly, investment activity is robust, the labor market stable, but inflation remains elevated. The rate hike is intended to support a faster return to the 2 percent target. And then comes a sentence that sounds like a promise: the committee will ensure price stability.

The interest rate peak has not yet been reached

Along with the decision, the Fed published its quarterly projections. The so-called dot plot shows where things are likely heading: 16 of the 18 members who submitted a projection expect at least one more rate hike this year, with four even considering two additional steps possible. Warsh himself has refrained from submitting his own forecast since taking office. The median of the projections is around 4.1 percent for the end of 2026. For the subsequent years, however, no further increases are expected; from 2028, the projections again point to cuts.

The political signal is also noteworthy. US President Donald Trump has been publicly calling for lower interest rates for months. The Financial Times interpreted the decision as Warsh's clearest sign yet that he is willing to stand up to the president, less than four months after taking office. Trump responded promptly, demanding rates of 1 percent or lower on Truth Social. The markets viewed this demonstration of independence positively.

The markets had priced in the move

Hardly anyone on Wall Street was surprised. The futures markets had recently priced in the hike with a high probability, and the bond market had moved ahead of the Fed. Accordingly, the reaction was concentrated at the short end of the yield curve: the yield on two-year Treasury Notes rose by 7 basis points to 4.74 percent, while yields on ten- and thirty-year US Treasuries barely moved. It is precisely these long maturities that, via global capital markets, influence the Swiss yield curve.

The reaction on the currency market was more pronounced: the dollar strengthened after the decision, USD/CHF reached 0.8251 francs, putting the franc near a 16-month low against the dollar. The next day, the situation calmed down: with falling oil prices, inflation concerns also eased, and yields on US government bonds slipped back slightly.

What the decision means for Switzerland

For Swiss mortgage borrowers, it's less about the US key rate itself and more about whether the movement spills over to the CHF swap curve. The finding after the decision: so far, it hardly does. The 10-year CHF swap was trading at around 0.78 percent on Thursday, slightly below the level of just under 0.80 percent reached after the ECB decision on September 10. The 5-year swap is at 0.61 percent, and the SARON remains at minus 0.04 percent. The explanation comes from the US bond market itself: since long Treasury yields barely reacted to the Fed decision and oil prices have recently declined, there was no impulse for long-term Swiss interest rates. The rise in swap rates that recently pushed fixed-rate mortgages to an 18-month high had already occurred in the previous weeks.

Attention now turns to Zurich and Bern: on September 24, 2026, the next SNB monetary policy assessment is scheduled. In June, the National Bank left the key interest rate unchanged at 0 percent, and that is unlikely to change now: unlike other central banks, the markets see little risk of an SNB rate hike this year. Switzerland thus remains the major exception: while the Fed sits at 4 percent and the ECB increased its deposit rate in September to 2.50 percent, the SNB key rate remains at zero.

What does this mean for your mortgage?

For SARON mortgage borrowers, nothing changes for now. The SARON follows the SNB key rate, and as long as it remains at 0 percent, SARON mortgages will remain the cheapest form of financing. The decision next Thursday is unlikely to change that.

The picture is more differentiated for fixed-rate mortgages. The terms are based on swap rates, and these have already partially anticipated the international rise in interest rates since the summer. If the Fed and the ECB continue their tightening, as the projections suggest, the pressure on medium and long maturities is likely to persist. Those who are planning to take out or extend a fixed-rate mortgage have little reason to wait: the probability that rates will rise in the coming months is higher than the probability they will fall.

Sources

• Federal Reserve: FOMC Statement of September 16, 2026
• Federal Reserve: Economic Projections of September 16, 2026
• Federal Reserve: Kevin Warsh Press Conference (Transcript)
• CNBC: Fed rate decision September 2026
• The Market: The Fed dares the first step towards a new interest rate cycle
• investrends.ch: Fed raises key interest rate
• SNB: Monetary policy assessment of June 18, 2026
• hypothek.ch: Current swap rates