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Chief Income Strategist, Investors Alley

The Fed raised rates Wednesday. The Dow fell 631 points. The 2-year Treasury yield jumped. The dollar rose. Gold fell. And 16 of 18 Fed officials said they expect at least one more hike before the end of 2026.

The Fed raised its benchmark rate by 25 basis points to 3.75%–4.00%. The move was widely expected. What came after mattered more. The Fed showed that Wednesday’s hike may not be the last. Markets now have to price the next one.

Wednesday, September 16

The Fed drove the day. Policymakers raised rates by 25 basis points. That pushed the target range to 3.75%–4.00%. The hike itself was not the surprise. The Fed’s own forecasts were.

16 of 18 officials said they expect at least one more hike before year-end. That was the number markets had to price. Wednesday’s move was already expected. Another one was not fully priced.

That pushed short-term Treasury yields higher. The 2-year rose to 4.738%. The dollar gained. Stocks lost ground.

Fed Chair Kevin Warsh kept the message clear. Inflation is still too high. The economy is still growing. Jobs remain firm. Consumers are still spending. That gives the Fed room to keep rates high.

It also gives policymakers room to raise them again if price growth stays firm. That is why the 2-year moved higher after the decision. Short-term yields tend to move with Fed policy. Wednesday’s move said one thing clearly. Markets now see another hike as a real risk.

The morning data gave the Fed another reason to stay firm. U.S. retail sales jumped 1.2% in August. Economists had expected a gain of just 0.8%. Core retail sales rose 1.4%. That was the largest increase since September 2024.

Consumers spent more online. They spent more at restaurants and bars. They bought more clothes. They also bought more furniture and electronics. That matters because higher rates have not stopped consumers from spending. The Fed does not need to cut rates to support weak demand. Demand is still there.

Import prices added another warning. They rose 0.7% in August. Economists had expected 0.4%. Prices were up 7.0% from a year earlier. That was the largest annual increase since August 2022.

Imported capital goods rose 0.9%. Imported computer, chip and peripheral prices were up 19.1% from a year ago. Prices outside food and fuel rose 0.8% for the month. That matters because the price pressure is not coming from oil alone. Goods coming into the U.S. are also getting more expensive.

The Dow fell 1.21%. The S&P 500 lost 0.44%. The Nasdaq finished almost flat. The Dow took the largest hit because energy, industrial and financial stocks came under pressure.

Decliners beat gainers by about 1.75-to-1 on the NYSE. On Nasdaq, 2,840 stocks fell while 1,913 rose. Volume reached 18.42 billion shares. That was well above the recent average. A lot of money moved after the Fed spoke. This was not a quiet pullback.

Technology held up far better than the rest of the market. The Philadelphia Semiconductor Index gained 0.6%. Intel rose 4.0%. The Nasdaq finished down just 0.01%.

That matters because higher rates usually hit expensive growth stocks harder. Wednesday was different. The biggest selling hit energy, industrial and financial names. Investors still bought selected chip stocks. That helped keep the Nasdaq almost flat.

Oil moved lower. Brent fell 2.7% to $105.83. WTI dropped 3.2% to $102.43. Saudi Arabia offered more crude to Asian buyers through Oman. That eased some fear over supply after attacks hit Saudi export routes.

U.S. crude inventories also fell by just 640,000 barrels. Economists had expected a drop of about 1.62 million. Gasoline and diesel stocks rose. That added more pressure to crude. But both benchmarks remain above $100. That means energy prices are still high enough to matter for inflation.

The drop in oil hit energy stocks hard. The S&P 500 energy sector fell 3.0%. Chevron lost 2.9%. Exxon Mobil fell 3.5%.

Devon Energy and ConocoPhillips each dropped more than 5%. Energy had been one of the market’s strongest groups while crude climbed. Wednesday showed how fast that trade can reverse when oil falls.

Gold fell 0.69% to $4,263.19 an ounce. The dollar rose. Treasury yields climbed. And the Fed said more hikes may be needed. All three moves hurt gold.

Gold pays no interest. When Treasury yields rise, investors can earn more from bonds. That makes gold less attractive. A stronger dollar also makes the metal more expensive for buyers outside the U.S.

Wednesday left markets with a short list of hard numbers:

The first hike is done. The next one is now the market’s focus. The economy is still growing. Consumers are still spending. Import prices are rising. Oil is still above $100.

And 16 of 18 Fed officials see another hike before year-end. The next inflation report now matters even more. If prices stay hot, another hike becomes easier to justify. If prices cool, the Fed can wait.

The Fed raised rates. The Dow lost 631 points. The 2-year-old jumped. Now markets have to price the next hike.