Fed Raises Rates, Markets Bet on Another Hike Amid Oiling Easing

The Federal Reserve raised interest rates for the first time since 2023, moving the benchmark to 3.75%-4%, in a unanimous decision that signals a firmer resolve by the central bank. The vote was a shift from the 9-3 split at July's meeting, which investors had read as a sign of more caution. Markets are now recalibrating how much further the Fed intends to tighten.

The forecasts released alongside the decision point to one more increase this year and a pause in 2027. The odds of another hike at October's meeting, just before the U.S. midterm elections, are roughly even according to Fed funds futures. This move has sent shockwaves through the financial markets, with stocks falling and the dollar jumping sharply against a basket of currencies.

Investors are weighing how to position for a higher-rate environment, which tends to weigh on rate-sensitive assets such as small-cap stocks. The inflation data released last week was hotter-than-expected, reinforcing the hawkish view of Fed Chair Kevin Warsh, who has been hesitant to offer forward guidance, leaving investors confused about his approach.

The oil prices have also eased, with crude falling below $100 a barrel after Saudi Arabia began rerouting some exports through the Strait of Hormuz to offset the closure of a key pipeline. Brent futures dropped as much as 3.6% to around $102 a barrel, while West Texas Intermediate slid 2.8% to $99.53.