What was the reason for US federal rate increase in 1928?

I think the other piece of the puzzle that you're missing is the speculative excesses in the US system by 1928. read more

The purpose of raising the interest rate was the dissuade banks from lending, as previously mentioned, because the Fed was nervous that too much speculation was going on in the stock market (due to rapid increases in equity prices and price-to-dividend ratios in 1928) and that credit was mainly being used to speculate and hence was not productive for the economy. read more

In 1928, equity prices were booming due to the increase in the money supply, and the Federal Reserve feared that this was a speculative bubble driven by low interest rates. The Fed's action was intended to encourage people to move money from investing in the stock market toward bank savings in an effort to stabilize the economy, not to borrow. read more