The Fed raised rates the same week private credit defaults set a record.

What did the Federal Reserve decide on 16 September?

It raised the federal funds target range by a quarter point to 3.75 to 4.00 percent, on a 12 to 0 vote. The statement said inflation remains elevated and the rise will support a timelier return to the 2 percent goal. CNBC reported it as the first increase in more than three years.

The implementation decisions took effect on 17 September. Interest on reserve balances rose to 3.90 percent and the primary credit rate to 4.0 percent. Overnight reference rates, and so the base rate on most private loans, follow those administered rates within days.

The unanimity matters as much as the size. At the July meeting the Committee held with three dissents, all in favour of a rise. In September nobody dissented. The debate inside the Committee has moved from whether to raise to how far.

Is this one move or the start of a path?

The Committee's own projections point to more than one. In the September Summary of Economic Projections, the median participant sees the federal funds rate at 4.1 percent at the end of 2026, up from 3.8 percent in June. The midpoint of the new range is 3.875 percent, so on our reading the median leaves room for one more quarter point this year.

Relief is not projected soon after. The median is 4.1 percent again for the end of 2027 and 3.9 percent for 2028, against a longer-run rate of 3.2 percent. Median core PCE inflation is projected at 3.4 percent for 2026, still well above the 2 percent goal.

For a borrower, the plain reading is that a floating-rate loan written this year should be underwritten at today's base rate or higher for its full life, not at a curve that assumes cuts in 2027.

What does Fitch's record default rate actually count?

Mostly amendments, not missed payments. Fitch put the trailing twelve-month US private credit default rate at 6.3 percent through August 2026, up from 6.1 percent in July and a high for the series, across roughly 1,300 borrowers. It has held at or above 6 percent since April.

Over the twelve months, interest deferrals and switches from cash to PIK interest made up 47 percent of default events and maturity extensions 41 percent. Those are lenders and borrowers agreeing to change the terms, and Fitch counts them because the lender accepts less than it was promised.

August itself was busy: 14 default events against three in July. Across the twelve months Fitch counts 109 events from 89 borrowers, so some companies have defaulted more than once. The model-based component of the rate rose to 5.6 percent from 5.2 percent; the privately monitored component eased to 8.5 percent from 8.6 percent, after peaking at 10.0 percent in March.

The stress is uneven. Healthcare and industrials and manufacturing each ran at 9.9 percent, while software was at 0.6 percent. By size, Global Finance reports Fitch's rate at 12 percent for borrowers below 25 million dollars of EBITDA and 5.2 percent for the 26 million to 50 million band, up from 3.9 percent in July.

What happens when a rate rise meets an amendment-led default market?

It arrives at the stage where borrowers are already negotiating. Fitch's August window closed before the Federal Reserve moved, so none of the record is the hike's doing. The next prints will be the first to carry it.

The arithmetic is simple and ours: each quarter point adds 25,000 dollars a year of cash interest for every 10 million dollars of unhedged floating-rate principal. For a company already paying part of its interest in kind, or already on an extended maturity, that increment lands on the same line the last amendment was meant to relieve.

What should an owner or a sponsor do now?

Re-run debt service at the new base rate plus another quarter point, this week, and compare the result with the tightest covenant test in the next four quarters. If headroom is thin, the lender should hear it from the company before the compliance certificate says it.

Look at the hedge position. A loan without a swap or cap now carries the Committee's projected path in full. The cost of protection has moved with the decision, but the decision itself, whether to fix some of the exposure, is cheaper to make before a second rise than after it.

If an amendment is already in place, read what it assumed about rates. Deferral and PIK terms agreed at a lower base rate compound faster at a higher one, and a maturity extension that bought a year of time does not change what that year costs.

Sponsors in healthcare and industrial platforms should expect lenders to read Fitch's 9.9 percent sector rates before they read the company. A refinancing or add-on facility is easier to place from a position of performance than from one that follows the next default print.