Interest rate hikes are here again. The Fed delivered its first rate hike in more than 3 years last week, and its members signaled that at least one additional hike could follow before the end of the year.
But the big news wasn’t the interest rate hike itself, which investors were widely expecting. It was the hawkish tone of the Fed’s press release, economic projections, and comments from Chair Kevin Warsh—a leader many investors had expected might be hesitant to hike rates.
The Fed’s change in direction is coming at a time when yields on long-term bonds have been hitting multi-decade highs, prompting investors to reevaluate whether rates may ever return to the low levels that generally prevailed from 2009 to 2022.
For those trying to discern how high rates may go, Chair Warsh and the Fed’s statements gave several valuable clues. Read on for 5 key signals from the Fed you might have missed, plus what this new era for interest rates may mean for you.
5 signals you may have missed at the September Fed meeting
Both the tone and substance of the Fed’s words conveyed a more hawkish Fed, meaning one more concerned about inflation and more inclined to raise rates, than some investors were expecting. Some of the most significant clues included:
1. Warsh’s comments about “removing a dose of accommodation”
Warsh repeatedly described the hike as a decision to remove “a dose of accommodation” from interest-rate policy. Aditi Balachandar, macro analyst on Fidelity’s fixed income research team, notes that this phrase carries weight for investors because it may implicitly signal that the Fed did not see the previous level of interest rates as restrictive—i.e., high enough to help restrain inflation.
“I would be hard-pressed to describe broad financial conditions as restrictive,” Warsh said at the Fed’s press conference.
Investor takeaway: The Fed potentially thinks rates have not been high enough to help fight inflation.
2. Warsh describing himself as “not data-point dependent”
Under former Chair Jerome Powell, investors got used to a Fed that paid great attention to the minute details of inflation trends—for example, favoring the core Personal Consumption Expenditures Index, or core PCE, measure of inflation, and watching the nuances of reported price changes closely. By following which data points Powell emphasized, investors could also better anticipate how a given data release might impact upcoming Fed decision-making.
Balachandar notes that several of Warsh’s comments last week point to a Fed that is less concerned about individual data points and more concerned with big-picture trends.
“The plain fact is that inflation is too high and has been for too long,” Warsh said. “We need to look outside the window and interrogate reality.”
Investor takeaway: With the US economy now in its sixth year of inflation running above the Fed’s 2% target, the central bank seems to be “losing patience with inflation,” says Balachandar. This could imply it’s feeling a greater urgency to act.
3. A different stance on a big inflation wildcard: energy prices
Balachandar notes the Fed conveyed a subtle signal in its press release: removing previous language about the role of “supply shocks” in keeping inflation elevated.
Those references had highlighted the importance of factors such as the Iran conflict, energy-market disruptions, and higher commodity prices in driving inflation. Historically, that distinction mattered because the Fed has little ability to address supply-driven inflation directly (higher interest rates don’t bring more oil to market, for example). Removal of that language may suggest the Fed is less willing to see the source of inflation as a reason to delay action.
Instead, Warsh emphasized in his comments that the Fed must ensure that these inflation pressures don’t broaden out to other parts of the economy beyond commodities.
Investor takeaway: High energy prices, driven by the Iran conflict, may no longer be a reason for the Fed to take a wait-and-see approach.
4. The Fed believes the US economy is strong, and getting stronger
In his comments, Warsh repeatedly highlighted the overall strength of the economy, noting robust investment, strengthening earnings, strong productivity growth, and a solid labor market. “The American economy appears to be strengthening,” he said in his opening remarks. In particular, he emphasized that the job market appears healthy and unemployment does not appear to be posing a risk.
This emphasis matters because one of the main arguments against raising rates is typically the risk of triggering an uptick in unemployment. Warsh's message was essentially that he doesn't see much evidence of that risk right now.
Investor takeaway: Fed members seem to believe that the job market and the economy can handle higher rates.
5. Fed members are rethinking where rates should settle in the long run
The Fed released updated economic projections after its meeting last week, including an updated “dot plot,” which shows where individual members of the Federal Open Market Committee (FOMC) believe interest rate policy may head from here. The dot plot showed that the median of FOMC members expects 1 additional rate hike in 2026, and no cuts or hikes in 2027.
But Balachandar notes that the more telling signal was the “longer run” dots—i.e., the part of the dot plot that shows where Fed members believe the fed funds rate should eventually settle. Those dots have generally been moving higher in recent years, and the median long-run dot moved up again at this meeting, she says.
“FOMC participants are recalibrating their assessment of where the neutral rate is,” she says. The “neutral rate” means an interest rate level that neither stimulates nor slows the economy, a bit like an economy’s equilibrium rate.
Investor takeaway: Don’t assume that the economy will get through this inflation patch, and then rates will fall to where they were in the 2009 to 2022 period. The new normal for interest rates is higher than it used to be.
When may inflation come down?
The Fed’s aim in raising interest rates is to slow inflation, with a goal of ultimately bringing annual inflation back down to a roughly 2% pace.
Andrew Garvey, analyst with Fidelity’s Asset Allocation Research Team (AART), explains that higher rates slow borrowing throughout the economy—everything from how much businesses borrow to how much consumers spend on credit cards or borrow via mortgages. Slower borrowing cools the entire economy, which gradually helps to cool inflation.
Yet there are several reasons why rate hikes may be somewhat less effective than normal in the current environment, he notes. As already noted, rate hikes don’t ease pressures in the energy market. Mortgage rates were already quite high. Consumer sentiment was already quite low, meaning higher borrowing costs may have little room to dampen it further. Plus, one primary engine heating the economy right now is the artificial intelligence (AI) investment boom, which has enormous momentum.
“One big question is going to be: How much does one interest rate hike really affect the hyperscalers and their borrowing plans?” Garvey notes. “It might help slow the edges of the economy, but it might not deter the capital expenditure spending that’s really driving certain costs up.”
Garvey notes that Fidelity’s AART sees inflation pressures as relatively entrenched, and believes inflation may remain elevated relative to the Fed’s target.
Where may bond interest rates go next
In addition to the fed funds rate, the benchmark interest rate the Fed directly controls, investors have been paying attention to volatility among longer-term interest rates. Rates on 10- and 30-year Treasurys have in recent weeks reached levels not seen in more than 2 decades. In his remarks, Warsh pointed to 3 major forces behind the recent rise in Treasury yields: a stronger economy, growing competition for capital, and geopolitical pressures.
Christine Thorpe, institutional portfolio manager on Fidelity’s fixed income team, notes that those same forces could continue to influence bond rates from here. If the economy remains resilient, inflation stays elevated, or oil prices move higher, long-term rates could tick up further. On the other hand, rates could move lower if inflation cools, global energy supplies improve, or economic growth begins to slow meaningfully.
One important wrinkle is that, like FOMC members, many investors are rethinking where interest rates should ultimately settle.
For now, Thorpe says, there are enough competing forces at work that making interest-rate forecasts is particularly difficult. The one thing that appears increasingly clear is that rates are likely to remain elevated unless either inflation or economic growth meaningfully changes course.
“There are a lot of different paths forward for bond interest rates from here,” says Thorpe.
What higher rates mean for investors and savers
While one or more additional rate hikes may lie ahead, Balachandar notes that she expects this to be a much less aggressive hiking cycle from what investors saw in 2022 to 2023, when the Fed raised its rate by more than 5 percentage points. “I’m expecting a shallow tightening cycle,” she says.
Still, consumers, savers, and investors may start to see the higher fed funds rate, plus elevated long-term rates, impacting their finances in various ways:
For borrowers
A combination of higher short-term and long-term interest rates can mean higher costs across a wide range of loans, from credit cards and adjustable-rate debt to mortgages and auto loans.
For savers
A higher fed funds rate can mean higher rates on short-term investments like money market mutual funds and short-term CDs. (Learn more about 7 ways to earn more on your cash.)
For bond investors
When interest rates rise, the market value of outstanding bonds falls. For this reason, recent interest-rate volatility has been challenging for bond investors, who may have seen the value of their holdings decline. The upside is that certain bonds, such as Treasurys, are now in some cases paying higher yields than they have in decades. “All-in rates look attractive—more attractive than they have in a long time,” says Beau Coash, institutional portfolio manager on Fidelity’s fixed income team.
For stock investors
Higher interest rates can be a mixed bag for stocks. As bond yields rise and bonds become more attractive, investors may start to sell stocks so that they can buy bonds, which can pressure stock prices. On the other hand, the market has often risen historically during periods when the Fed was tightening modestly against a backdrop of economic growth.