What Happened
The Fed raised rates a quarter point this week, its first increase since July 2023. The vote was unanimous. The funds rate now sits at 3.75% to 4.00%. Chair Warsh framed it as removing accommodation, undoing part of the 2024 and 2025 rate cuts rather than a true tightening campaign. He said he would be hard-pressed to call financial conditions restrictive. Stocks barely moved, which suggests the market read it the same way.
The Oil Problem
Much of the inflation the Fed is fighting comes from oil. The Iran war has kept crude near $90, and diesel hit a record yesterday. Raising rates does not open the Strait of Hormuz. Warsh said so himself: the Fed cannot affect any individual price, but it can keep fuel costs from spreading into everything else. High oil also does some of the Fed’s work for it. Expensive fuel acts like a tax, pulling spending power out of the economy the same way higher rates do. That is one reason the Fed moved a quarter point rather than something larger.
More Hikes Are Probably Coming
The Fed rarely raises rates just once, and its own projections say the same this time. Sixteen of eighteen officials expect at least one more hike this year, likely in December since the October meeting falls near the midterms. No further increases are penciled in for 2027, with cuts in 2028 and beyond. Oil is one driver of the path, but not the only one. Services inflation, wages, and shelter costs have stayed stubborn, and the labor market remains solid. Peace in the Middle East would help, but the Fed probably needs to see broader progress before this cycle ends.
The Bottom Line
Not much needs to change. Cash and short bonds pay real money again, and long-term Treasury yields above 5% remain attractive for investors rebalancing toward long-term targets. This hike was expected, unanimous, and modest. If your situation or goals have changed, please reach out. Otherwise, stay invested, stay diversified, and let the plan do its work.
Disclosure
This material is provided by Gryphon Financial Partners, LLC (“Gryphon”) for informational purposes only. It is not intended as a substitute for personalized investment advice or as a recommendation or solicitation of any particular security, strategy, or investment product. Facts presented have been obtained from sources believed to be reliable, though Gryphon cannot guarantee their accuracy or completeness. Gryphon does not provide tax, accounting, or legal advice. Individuals should seek such guidance from qualified professionals based on their specific circumstances.