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Changing Seasons! As summer ‘officially’ gives way to fall on September 22, it's not just the weather that's changing. The global monetary policy landscape is shifting as well. After spending much of the past two years focused on supporting growth, central banks have Despite The Fed Rate Hike, The US increasingly turned their attention back to inflation, especially with oil prices climbing back Economy Remains on Solid Footing above $100/barrel. While economic activity remains resilient (particularly in the US), interest rates have moved sharply higher as policymakers respond to renewed inflation Fundamentals, Not Fed Policy, Will Remain pressures. In fact, more than 40% of the 32 central banks we follow have returned to The Driver Of Equity Market Performance tightening policy over the past six months. The Fed joined that trend this week, delivering a widely anticipated 25bp rate hike, its first increase since 2023. For investors, the key Current Yields Provide An Attractive question is what comes next. Below, we explore how the Fed's latest decision could shape Entry Point For Fixed Income Investors the policy outlook, the economy, and financial markets in the months ahead. • The Fed Hikes But Signals Limited Further Tightening | After months of internal debate, the Federal Reserve unanimously raised the federal funds rate by 25bps to 3.75%-4.00%, its first increase in three years. Chair Warsh described the move as a step toward “removing a degree of accommodation” based on three key factors: stronger growth, persistent inflation, and geopolitical uncertainty. The updated Summary of Economic Projections reinforced that message, with policymakers modestly raising their growth forecasts to 2.3% in 2026 and 2.4% in 2027, lowering the unemployment rate to 4.1%, and projecting only a gradual return to the 2% inflation target. Importantly, the revised dot plot does not signal a prolonged tightening cycle, showing just one more rate hike this year and steady rates in 2027. In our view, the Fed’s rate hike represents a mid-cycle adjustment rather than a major tightening cycle. As tariff- and energy-related price increases roll out of the YoY calculations, the broader disinflation trend should reassert itself, reducing the need for further policy restraint. • What The Fed Rate Hike Means For The Markets | The key question for investors is whether the Fed’s latest move changes the outlook for economic growth, corporate earnings, and financial markets. Below, we address the implications for the economy and major asset classes. ➢ Economy—While the Fed meeting dominated the headlines, it may only rank fourth on the list of what's driving the economy today. The more important drivers remain oil prices, the AI-investment boom, and the resilience of higher-income consumers. Together, these trends are having a far greater influence on economic growth than a single Fed rate hike. In fact, a 25bp increase is unlikely to meaningfully alter any of those three drivers. It's not likely to stop companies from investing in AI, reverse the direction of energy markets (we need a resolution to the Iran war for that), or significantly change spending patterns among higher-income households. That isn't to say rates don't matter. They do at the margin. But the more meaningful impact is likely to be felt by middle- and lower- income consumers, who are more sensitive to borrowing costs and ongoing affordability pressures—particularly as this year’s tax refund boost fades. For investors, this suggests keeping an eye on the trend in real time activity metrics rather than being overly focused on the prospect of another rate hike. That said, our 2.3% 2026 GDP forecast remains unchanged from our outlook prior to the Fed’s latest move. ➢ Equities—The first Fed hike has historically led to short-term volatility, not the end of the bull market. Across the six initial Fed hikes since 1990, the S&P 500 fell 3% on average over the next three months. Longer term, returns have been more encouraging, with the S&P 500 gaining ~8% on average over the next 12 months and positive >80% of the time. Looking ahead, we believe fundamentals, not Fed policy, will drive market…