The quarter-point increase was expected. The larger change is a policy path that is now 30 basis points higher for end-2026 and 50 basis points higher for end-2027 than the Fed projected in June.
A 50-basis-point change in a refinancing assumption adds $5 million of annual pre-tax interest for every $1 billion of debt if it passes through fully. That sensitivity is the useful way to read the Federal Reserve's September projections: the median end-2027 policy rate is now 4.1%, half a percentage point above the path policymakers published in June.
The Fed raised the federal-funds target range by 25 basis points to 3.75%-4.00% on September 16, its first increase since July 2023, in a unanimous vote. The near-term move was less consequential for underwriting than the revision to the path behind it.
June's medians were 3.8% for end-2026 and 3.6% for end-2027. September lifts those to 4.1% in both years, a 30-basis-point revision for 2026 and 50 basis points for 2027. The 2028 median also rises to 3.9% from 3.4%. Borrowers with floating exposure or maturities inside the next 12 to 24 months have correspondingly less room to assume that policy easing will rescue marginal economics.
The transmission runs through the curve, not the dot plot alone
The transmission from the Fed's 4.1% median to asset values runs through several layers. Fed funds influences expected short rates; Treasury yields incorporate those expectations plus inflation and term premia; corporate and project borrowers then pay a spread over the relevant benchmark. Equity discount rates sit further downstream.
The first market response shows why the distinction matters. Treasury's closing curve on September 16 put the two-year yield at 4.74%, up from 4.67% on September 15, while the 10-year finished at 5.01%, one basis point above the prior close. The front end absorbed more of the repricing than the long end. On September 17, yields then retreated as investors reassessed the inflation path.
That pattern does not remove the cost-of-capital issue. It locates it. The cleanest near-term pressure is on floating-rate borrowers and companies with debt rolling inside the next 12 to 24 months. Long-duration equities and fixed-rate infrastructure are affected through the Treasury curve and credit spreads, which can move differently from the policy rate.
The Fed's projections also make the persistence signal unusually clear. The June-to-September shift is larger in 2027 than in 2026. Policymakers are not merely inserting one near-term hike into an otherwise unchanged easing cycle; the median path now keeps policy around 4.1% for another full year.
That is a more useful baseline for underwriting leveraged transactions, speculative data-center builds and other projects that depend on refinancing. A business with current cash flow and fixed-rate debt can absorb this path very differently from one whose returns require a 2027 refinancing at materially lower rates.
For underwriting, the meeting changes the financing assumption more than it changes the economy in one step. The Fed has extended the period in which short-term capital is expected to remain restrictive. The market can still offset part of that through lower long yields or tighter credit spreads, but borrowers exposed to the front end now have less room to assume that rate cuts will rescue marginal economics in 2027.