Trump’s calls for the Fed to cut rates “quickly” didn’t work: all FOMC members unanimously voted to raise rates by 25 basis points to 3.75–4%.
Now, a tighter monetary policy would usually hurt markets because higher rates pressure the economy and make it harder for highly leveraged companies to service and refinance debt. This time, though, the Fed’s decision showed it isn’t losing its independence, so there’s less reason to worry about lost credibility, higher inflation expectations, a weaker dollar (as tracked by the dollar index), and higher government borrowing costs. Plus, the rate hike was already priced in.
As for why investors seem unfazed by the Fed expecting rates to stay higher, by 0.3 percentage points in 2026 and 0.5 percentage points in 2027–2028, with rates staying elevated through 2029, predictable monetary policy may have mattered more.
Investors could also be hoping that the conflict in Iran ends soon and the Strait of Hormuz reopens, gasoline and oil prices could fall, and if trade wars don’t escalate, the Fed could soften its hawkish stance.
The problem is that for months, headlines have said the sides are close to a peace deal, sometimes even signing documents, but nothing really changes.
Same now, moments after reports emerged that Tehran was supposedly ready to reopen the strait “within 7 days” if the US accepts its conditions, eases military pressure, and lifts the blockade, Iran has already denied them. Trump also rejected claims that the US is running low on munitions, calling them false. So the conflict is still far from over.
Let’s see if the US-China summit, or more specifically, the leaders’ meeting on September 24, brings anything new. Until then, hopes that Saudi Arabia will restart the East-West oil pipeline could keep oil prices under pressure.
If all of that ultimately fails, it’s worth considering that US Strategic Petroleum Reserve stocks fell to 285 million barrels last week, the lowest since November 1982. On top of that, if the Trump administration releases another 39 million barrels as planned, inventories would fall to around 250 million barrels, below the 252.4 million-barrel threshold set by Congress for normal releases.
So the longer the conflict drags on, the worse it could get, including for the US.