Fed’s Unanimous Rate Hike & Jewelry Sales Shine

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Hanna Horvath (0:31)

The wait is over. The Federal Reserve has raised rates for the first time in three years.

Dylan Lewis (0:37)

And the grim reaper of software claims another victim.

Hanna Horvath (0:40)

For Wednesday, September 16th, it's Brew Markets Daily. I'm Hanna Horvath.

Dylan Lewis (0:43)

And I'm Dylan Lewis. Let's get moving and grooving.

Hanna Horvath (0:54)

Dylan, it's true. We have been waiting all week for this news.

Dylan Lewis (0:58)

All month, really. I mean, honestly.

Hanna Horvath (1:00)

Maybe even all year, but I think that probably says more about us than it does the Fed.

Dylan Lewis (1:05)

Sadly, yes, yeah.

Hanna Horvath (1:07)

Either way, happy Fed Day. For the first time since 2023, the Federal Reserve has raised interest rates by a quarter of a percentage point. That brings the benchmark rate to 3.75 to 4%.

Now, the hike itself is not a huge surprise by the time we got here. Markets came into today putting a more than 90% chance on the move. But it is remarkable how 2026 has been quite different from original expectations. Original forecasts for the year anticipated steady rate holds and minor cuts. And now here we are hiking. And the short version on why is that the economic picture has gotten much messier. Inflation is still above the Fed's 2% target. Oil has been back above $100 a barrel. Tariff and other supply pressures are adding to costs. And through all of that, the US economy has remained surprisingly resilient.

We got another example actually of resilience this morning. Retail sales jumped 1.2% in August, which beat expectations. So even though consumers may be feeling grumpy about the economy, they're not exactly behaving like we're in a recession. And all of this together matters for the Fed. If the economy was already falling apart, policymakers would have a much stronger reason to look through the oil shock and avoid piling on higher rates on top of all of that. Instead, the economy appears strong enough that the Fed has more room to focus on price stability.

But Dylan, the question that everybody seems to care about right now is, was this a one-time adjustment or do we just start another tightening cycle? What did Kevin Warsh actually tell us today?

Dylan Lewis (2:33)

Yeah, Warsh was pretty straightforward. I mean, one of the quotes that jumped out to me was the plain fact that inflation is too high and has been for too long.

I think five years into being above a 2% target, we can all kind of agree that that is the case.

He reiterated the overall strength of the economy, had some good numbers to be able to get to a point to also reiterated the importance of the Fed operating independently. Warsh has not been the Fed chair for a particularly long period of time, but in his time there, he has been very hesitant to provide any forward guidance. He continued that short-lived tradition today. We did get a little bit more of a look from the thoughts of the Federal Open Market Committee as a whole. This was a unanimous decision to raise rates, which I think is important to note. And also looking at the dot plot, the group overwhelmingly believes there's going to be another rate hike this year.

Hanna Horvath (3:20)

Yeah, going back to Warsh, he didn't really give us much in his speech, which of course is slightly inconvenient. This is a time where people really want Warsh to give that insight into what he's planning for December. Wall Street, on the other hand, was considerably less shy.

Morgan Stanley joined Goldman, JP Morgan, HSBC and Deutsche Bank in moving towards a more hawkish outlook. Morgan Stanley now expects another quarter point hike in December, and markets were already pricing in another move by year's end, even before today's meeting.

Dylan Lewis (3:48)

Yeah, I think it's important that we back up a second. A few months ago, we were talking about when rates might come down. We are now kind of debating how many times they may have to go up.

Hanna, I have my thoughts, but why do you think that this narrative changed so quickly for the macro environment?

Hanna Horvath (4:02)

Yeah, I think a big part of the answer is the inflation story changed. And I think all of that just makes the Fed's job harder and just creates new risks and new headaches for them to worry about. The Fed obviously can't do something like make oil cheaper. It's not like Kevin Warsh has a secret oil well, beneath the Fed building, at least that we know about.