[MSX Institute · Daily Observation on U.S. Stocks and RWA] is a flagship daily report by MSX, the leading RWA trading platform. Leveraging our robust macro research capabilities, we capture the core dynamics of global traditional U.S. stocks, liquidity shifts, and the RWA tokenization market to help you strategically position yourself in high-quality assets.
Today's Observation
The Federal Reserve has officially resumed interest rate hikes.
On September 16, the Federal Reserve unanimously voted 12-0 to raise interest rates by 25 basis points, raising the target range for the federal funds rate to 3.75%–4.00%. This is the first rate hike since 2023 and the first policy adjustment under Kevin Warsh’s tenure as Federal Reserve Chair.
This rate hike itself was largely in line with market expectations; what truly impacts asset prices is the Fed’s assessment of the future path of interest rates. The latest dot plot shows the median federal funds rate at the end of 2026 has been raised from 3.8% in June to 4.1%, suggesting another 25-basis-point hike may still occur this year; the median rate at the end of 2027 remains at 4.1%, indicating that, under the Fed’s current baseline scenario, no rate cuts are expected next year. Sixteen of the 18 policymakers anticipate at least one more rate hike this year.
This is the most important takeaway from this meeting: the Fed is not making a one-off "preemptive rate hike," but rather rebuilding a tighter interest rate path.
U.S. stocks initially rose briefly after the announcement, but major indices later weakened as Warsh emphasized that inflation remains too high and the economy is strengthening. The S&P 500 closed down 0.44%, the Dow Jones fell 1.21%, and the Nasdaq edged nearly flat. The two-year U.S. Treasury yield rose to around 4.73%, while the ten-year yield remained near 5%, and the dollar climbed to its highest level in about seven weeks.
It is worth noting that the Fed's rate hike was not due to a sudden deterioration in the economy, but because both growth and inflation came in stronger than previously expected. The Fed raised its 2026 real GDP growth forecast from 2.2% to 2.3%, and lowered its unemployment rate forecast from 4.3% to 4.1%. Meanwhile, the PCE inflation forecast was raised from 3.6% to 3.7%, and the core PCE forecast was raised from 3.3% to 3.4%.
This is a relatively complex scenario for U.S. equities: economic growth and corporate earnings remain supported, but inflation keeps interest rates from falling, continuing to constrain stock valuations through high discount rates.
Data per minute
- The Federal Reserve raised interest rates by 25 basis points, raising the target range for the federal funds rate to 3.75%–4.00%;
- The resolution was passed unanimously with 12 votes in favor and 0 against, marking the first interest rate hike since 2023;
- The median forecast for the policy rate at the end of 2026 has risen to 4.1%, up from 3.8% in the June forecast;
- 16 out of 18 policymakers expect at least one more rate hike within 2026;
- The median forecast for the policy rate at the end of 2027 remains at 4.1%, with no room for rate cuts next year under the current baseline scenario;
- GDP growth forecast for 2026 has been raised from 2.2% to 2.3%;
- The unemployment rate forecast for 2026 has been lowered from 4.3% to 4.1%;
- The 2026 PCE inflation forecast has been raised from 3.6% to 3.7%; core PCE has been raised from 3.3% to 3.4%;
- The S&P 500 fell 0.44%, the Dow Jones dropped 1.21%, and the Nasdaq remained essentially flat;
- The two-year U.S. Treasury yield rose to approximately 4.73%, while the ten-year U.S. Treasury yield remained around 5%.
- The U.S. Dollar Index rose to around a seven-week high, as markets further priced in the possibility of another rate hike this year;
- Warsh believes that the rise in long-term yields stems not only from inflation but also from stronger U.S. economic growth, increased capital spending on AI and data centers, and large tech companies competing for financing.
MSX View
Understanding this rate hike requires looking beyond the 25 basis points and examining how the Fed's assessment of the U.S. economy has changed.
Over the past period, the market’s core assumption was that inflation would eventually decline, and that the Fed, even if not cutting rates immediately, would not re-enter a hiking cycle. But the latest economic projections have shattered this assumption. The Fed has simultaneously raised its growth forecast, lowered its unemployment forecast, raised its inflation forecast, and raised its policy rate projection—indicating that policymakers believe the U.S. economy can withstand higher rates, and that current rates are still insufficient to bring inflation back to 2% in a timely manner.
Wash stated at the press conference that inflation has been “too high for too long,” and the data this summer did not demonstrate a meaningful improvement in underlying inflation trends. He also believes the U.S. economy has strengthened further since midyear, and the labor market is essentially at full employment.
Therefore, this rate hike is not intended to rescue the economy, but rather to prioritize lowering inflation while the economy remains strong. For the stock market, this is easier to absorb through earnings growth than an emergency rate hike during a recession, but it also means valuations will find it difficult to continue expanding based on expectations of future rate cuts.
Market reactions have already reflected this contradiction: the Dow Jones fell over 1%, while the Nasdaq remained nearly flat. Higher interest rates typically weigh on tech stocks, as future cash flows must be discounted at higher rates; however, major tech companies continue to benefit from AI capital expenditures, cloud computing demand, and strong profitability, temporarily offsetting some of the valuation pressure.
This does not mean that AI trading can ignore interest rates.
Warsh specifically noted that hyperscale cloud providers are raising capital in the market, and increased AI and data center capital expenditures are intensifying competition for funding. Previously, the market primarily viewed AI investment as a source of revenue for NVIDIA, cloud, and data center companies, but when capital expenditures reach a large enough scale, they also drive up overall economic demand for capital and long-term interest rates.
This creates a feedback loop worth noting:
AI investment drives expectations for economic growth and productivity, while increasing demand for electricity, chips, construction, and financing; stronger growth and higher funding needs push up long-term yields; higher yields, in turn, raise financing costs for data centers and depress the fair valuations of highly valued tech companies.
Therefore, the 10-year U.S. Treasury yield may be more significant than the federal funds rate itself. While the policy rate has only increased by 25 basis points, the 10-year yield has already reached around 5%, nearing its highest level since 2007. It directly impacts mortgage rates, corporate bonds, merger and acquisition financing, and stock valuations, and is the true source of current financial tightening.
For U.S. equities, this meeting does not equate to a full shift toward pessimism. The Fed forecasts 2.26% economic growth and an unemployment rate of just 4.1% for 2026, and does not treat a recession as its baseline scenario. If corporate earnings continue to grow, large technology companies with strong cash flows and low debt levels remain capable of absorbing higher funding costs.
Companies that rely on external financing, are currently unprofitable, or have cash flows concentrated in the distant future may be under the greatest pressure. Real estate, residential construction, highly leveraged firms, and data center projects requiring continuous funding will also be more sensitive. Banks must contend with higher short-term interest rates, changes in the yield curve, and potential credit costs, and cannot be simplistically viewed as “benefiting inevitably from rate hikes.”
The political dimension is also worth watching. Although Warsh was nominated by Trump, this rate hike contradicts Trump’s ongoing calls for lower rates, yet it received unanimous support from the FOMC. This reinforces in the short term the Fed’s signal of commitment to maintaining its credibility on inflation control, but may also increase policy friction between the White House and the central bank.
What the market truly needs to watch now is not whether the Fed will mechanically raise rates once more, but whether the three conditions supporting this rate-hiking path continue to hold: whether inflation remains above 3%, whether the labor market stays stable, and whether the 10-year U.S. Treasury yield continues to hover around 5%.
If inflation shows no significant improvement and the economy remains resilient, another rate hike this year will be the base case, with high rates potentially lasting until 2027. Conversely, if energy prices decline, core inflation cools, or employment weakens unexpectedly, the Fed may still adjust its path.
So, what this rate hike truly changes is not the level of interest rates themselves, but the market’s pricing framework. Investors used to debate “when will rates be cut?”; now they must reassess “how long will high rates last, and can AI-driven profit growth outpace financing costs and valuation contraction?”
Economic growth continues, and AI investment has not stopped, but cheap capital is no longer the default condition. Companies that can sustainably outperform the market in the next phase must demonstrate not only revenue growth but also the ability to generate sufficiently high returns on capital in an environment with long-term interest rates near 5%.
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Risk disclaimer: Macroeconomic conditions and U.S. stock market volatility are significant; the content of this article is for academic and research observation purposes only by MaiTong Research Institute and does not constitute any investment advice.