The Fed Raised Rates and Warned of More — Now Two Big Numbers Decide If It Can Keep Going
The Fed did what everyone expected: it raised rates for the first time this year, to 3.75–4.00%. The surprise was the message that came with it — 16 of 18 officials now see at least one more hike before year-end. Yet the market did not fall apart. Technology shares are still climbing (the Nasdaq closed at a record), even as the Dow logged a fourth straight losing week and the 10-year bond yield pushed to 5.2%, its highest since early 2025. This is quarter-end, and the calendar is packed: the Fed’s favourite inflation gauge (PCE) lands Wednesday and the September jobs report follows Friday — together they decide whether the Fed’s hawkish path holds or the economy starts to crack.
Summary
Three key numbers this week
Last week the Fed delivered the rate hike markets had priced in, lifting its benchmark to 3.75–4.00% — its first increase in three years. The twist was the guidance: the Fed’s own projections (the “dot plot”) showed 16 of 18 officials expecting at least one more hike before the end of 2026, and Chair Warsh made clear he does not think inflation has meaningfully improved. That is a hawkish stance, and it pushed the 10-year Treasury yield to about 5.2%, the highest in more than a year.
What is striking is how split the market has become. High bond yields normally hurt shares, and they did hurt the Dow, which fell for a fourth straight week. But technology kept climbing: the Nasdaq closed at a record, up 2.1% on the week, as investors kept paying up for the AI growth story — Meta jumped nearly 17% on a new AI product. So the market is pulling in two directions at once: AI optimism on one side, the weight of rising rates on the other.
This week decides which side wins, because the data finally tests the Fed’s hawkish view. The PCE index — the inflation measure the Fed watches most closely — is released Wednesday, and the September jobs report follows Friday. If inflation stays hot and jobs stay firm, the Fed’s case for more hikes holds and yields climb further. If either one weakens, the market will start to ask whether the Fed is tightening into a slowdown. It is also quarter-end, which can add extra volatility as funds adjust their positions.
Last Week
What happened last week
September 25 (Fri) closing prices. Weekly change vs the previous Friday.
The week was dominated by the Fed. On Wednesday the central bank raised rates by a quarter point — a unanimous vote — and signalled more to come. Stocks fell hard on the decision day, with the Dow dropping around 600 points as Chair Warsh stressed that inflation is still too high. Bond yields jumped, with the 10-year reaching 5.2%.
But the mood improved into the weekend. By Friday, stocks rallied — the Dow rose 479 points — helped by two things: falling oil prices, on hopes that the Strait of Hormuz could reopen after Iran asked the US to talk, and continued strength in AI-related shares. The result was a genuinely split week: the Nasdaq gained 2.1% and closed at a record, the S&P 500 rose 0.6%, but the Dow slipped again for a fourth straight weekly loss.
Underneath, the divide was between AI winners and everything sensitive to rates. Meta soared 16.8% on excitement about its new consumer AI product, and chip stocks led. Meanwhile the parts of the market that depend on cheap borrowing struggled under the weight of a 5.2% yield. Consumer confidence also weakened, and households now expect 4.6% inflation over the next year — a reminder that the higher cost of living is starting to bite.
| Asset | Close | Weekly change | Direction | Comment |
|---|---|---|---|---|
| Stock indices | ||||
| S&P 500US500 | 7,743.41 | +0.6% | Rose | Recovered from the Fed-day drop as oil fell and AI shares rallied. Still capped just below its record high. This week’s PCE and jobs data are the next test. |
| Nasdaq CompositeCOMP | 27,068.72 | +2.1% | Record close | Led the market to a fresh record on AI strength, with Meta up 16.8%. The clearest sign that the AI growth story is still driving the tape despite high rates. |
| Dow JonesUS30 | 51,828.62 | −0.2% | Fourth weekly loss | Fell for a fourth straight week — its longest slide since 2023 — despite a 479-point Friday bounce. The most exposed index to the 5.2% yield and the hawkish Fed. |
| Russell 2000RUT | ~2,930 | −0.5% | Eased | Small caps stayed under pressure, as rate-sensitive smaller companies feel the 5.2% yield most. A weak spot to watch if yields keep climbing. |
| Currencies | ||||
| US Dollar IndexDXY | ~98.40 | −0.3% | Mixed | Softened slightly even after the hike, as the increase was fully expected. This week’s PCE and jobs data are the next major drivers for the dollar. |
| Euro / US dollarEURUSD | ~1.1720 | +0.4% | Firmed | Held firm as the ECB, which finished raising rates earlier, looks steady. The gap in guidance between the two central banks drives the pair. |
| US dollar / Japanese yenUSDJPY | ~149.60 | +0.5% | Rose on yields | Firmed as US yields climbed to 5.2%. The wide gap between US and Japanese rates keeps pressure on the yen despite Japan’s hawkish lean. |
| Pound / US dollarGBPUSD | ~1.3380 | −0.3% | Eased | Softened on the firmer dollar and high US yields. UK data is light this week, leaving the pound to trade on the US jobs and inflation numbers. |
| Energy and commodities | ||||
| WTI crude oilUSOIL | ~$97.50 | −2.2% | Eased below $98 | Fell on hopes the Strait of Hormuz could reopen, after Iran asked the US to talk. A pullback in oil eases inflation pressure — helpful just before Wednesday’s PCE data. |
| Brent crude oilUKOIL | ~$101.50 | −2.5% | Fell | Followed WTI lower on the diplomatic opening. Still above $100, so the risk premium from the Iran conflict has not fully disappeared. |
| Natural gasNATGAS | ~$2.95 | −1.3% | Little changed | Eased slightly with the broader energy complex as the immediate supply fear cooled. |
| Metals | ||||
| GoldXAUUSD | ~$4,390 | +0.9% | Near record | Firmed even with the rate hike, as safe-haven demand and central-bank buying outweighed higher yields. A weak jobs or PCE number could push it to a new record. |
| SilverXAGUSD | ~$64.90 | +1.7% | Multi-year high | Continued its strong run on the same safe-haven demand plus AI-linked industrial buying. One of the standout commodities of the year. |
| CopperCOPPER | ~$4.66 | −0.6% | Little changed | Roughly flat, caught between AI-related demand and worries that high rates could slow the wider economy. |
| Cryptocurrencies | ||||
| BitcoinBTCUSD | ~$78,500 | +2.5% | Firmed | Held up well despite the hike, supported by the same risk-on mood lifting tech. High yields are the near-term risk; the PCE and jobs data are the key inputs this week. |
| EthereumETHUSD | ~$2,320 | +3.0% | Rose | Outperformed Bitcoin modestly. Over 90% of large altcoins have beaten Bitcoin over the past three months, a sign the crypto rally is broadening. |
| Government bond yields | ||||
| US 10-year yieldUS10Y | ~5.18% | +0.20pts | Highest since 2025 | Jumped to 5.2% after the Fed signalled more hikes — its highest since early 2025. The single most important pressure on stocks. A hot PCE could push it higher still. |
| US 2-year yieldUS2Y | ~4.65% | +0.10pts | Rose | Climbed as the market priced the Fed’s hawkish dot plot. Friday’s jobs report will decide whether it keeps rising toward the next expected hike. |
| Notable companies | ||||
| Meta PlatformsMETA | ~$820 | +16.8% | AI product surge | Soared on enthusiasm for its new consumer AI agent, “Meta Muse.” The single biggest driver of the Nasdaq’s record week and a sign AI optimism is intact. |
| MicronMU | ~$965 | Earnings Wed | Reports this week | Reports Wednesday. With AI-memory demand exceptionally strong, its results and outlook are a key read on whether the chip rally can continue. |
| SpaceXSPCX | ~$152 | AI deal | Big contract | Firm after reporting a large computing deal earlier in the month, adding to the AI-infrastructure theme running through the market. |
Main Influences
Three main influences on the market this week
The reasoning behind each is laid out here. The calendar and price levels further down refer back to these three.
PCE on Wednesday and the jobs report Friday — the test of the Fed’s hawkish view
The Fed just told the market it expects to raise rates again this year. This week the data gets to answer back. Two releases matter above all: the PCE price index on Wednesday — this is the inflation measure the Fed relies on most, even more than the better-known CPI — and the September jobs report on Friday. Together they show whether inflation and the labour market are still strong enough to justify another hike.
Here is the simple way to read it. If PCE stays hot and the jobs report is firm, the Fed’s hawkish plan looks right, yields push higher, and rate-sensitive shares stay under pressure. If either number comes in soft — cooler inflation or weaker hiring — the market will start to doubt whether the Fed can really keep tightening, which would pull yields down and give stocks room to breathe. Because these two reports point in the same direction only some of the time, a mixed result (hot inflation but weak jobs, or the reverse) is the outcome that would cause the most confusion.
The 10-year yield at 5.2% is the real force pulling on the market
The number that matters most right now is not a stock price — it is the 10-year Treasury yield, which reached about 5.2% last week, the highest in more than a year. This yield sets the cost of borrowing across the whole economy: mortgages, business loans, and the rate against which shares are valued. When it rises, it makes future company profits worth less today, which is why it weighs hardest on fast-growing and rate-sensitive shares.
This is the tension at the heart of the market. The Nasdaq is at a record because the AI story is strong enough to overcome high rates — so far. But the Dow’s four-week losing streak shows that most of the market cannot ignore a 5.2% yield. If this week’s data pushes the yield higher, even the AI leaders become harder to justify. If the data lets the yield ease back below 5%, the pressure lifts across the board. Quarter-end can add to the swings, as large funds adjust their holdings before the new quarter begins.
AI strength versus everything else — can the divide continue?
The clearest feature of the market right now is how narrow it has become. The Nasdaq’s record hides the fact that most shares are struggling: the Dow has fallen four weeks in a row, and small companies are weak. The gains are concentrated in a small group of AI winners, with Meta’s 17% jump last week the latest example. Micron’s earnings on Wednesday will test whether the AI-chip demand behind this rally is as strong as investors believe.
For readers, the question is whether this narrow leadership can hold. A market carried by a few names is more fragile than one where gains are broad, because if those few stumble, there is little underneath to catch the fall. The healthiest outcome this week would be soft data that lets yields fall and the rally broaden to include the parts of the market that have been left behind. The riskier outcome is that AI names keep rising alone while the rest weakens — a split that history suggests does not last indefinitely.
The Week Ahead
Economic calendar and central bank decisions
All times are US Eastern Time (ET / GMT−4). Importance: H high · M medium · L low. A packed quarter-end week: PCE inflation Wednesday and the September jobs report Friday are the headline events.
Current central bank interest rates
Price Levels
Important price levels
For technical reference only. Support (a floor where buying tends to appear) in green; resistance (a ceiling where selling tends to appear) in red. These are estimates, not price targets.
| Instrument | Support | Resistance | Context |
|---|---|---|---|
| S&P 500US500 | 7,650 · 7,540 | 7,800 · 7,900 | Capped below its record near 7,800. Soft data could break it higher; a hot PCE or jobs number risks a pullback toward 7,650. |
| Nasdaq CompositeCOMP | 26,600 · 26,000 | 27,400 · 27,800 | At a record on AI strength. Holding above 26,600 keeps the uptrend intact; a jump in yields is the main risk to the leaders. |
| WTI crude oilUSOIL | $93 · $88 | $100 · $105 | Eased below $98 on Hormuz talks. Progress points toward $93 or lower; a breakdown in talks reopens $100–105 and revives inflation worry. |
| GoldXAUUSD | $4,320 · $4,220 | $4,450 · $4,550 | Near a record around $4,390. Soft data or a weaker dollar could drive a new high; a hot PCE and higher yields are the pullback risk. |
| BitcoinBTCUSD | $75,000 · $72,000 | $81,000 · $85,000 | Held near $78,500 despite the hike. Soft data could retest $81,000; a jump in yields is the near-term risk. |
| US dollar / Japanese yenUSDJPY | 148 · 146 | 150 · 152 | Near 149.6 on high US yields. A hot PCE pushes it toward 150+; Japan’s hawkish lean caps the upside on any pullback. |
| Euro / US dollarEURUSD | 1.165 · 1.158 | 1.180 · 1.188 | Near 1.172. Soft US data opens 1.180; a hot PCE and higher yields send it back toward 1.165. |
| US 10-year yieldUS10Y | 5.00% · 4.85% | 5.25% · 5.40% | At 5.2%, a multi-year high. The 5% level is the key line: a hot PCE pushes it toward 5.4%; soft data pulls it back below 5% and lifts stocks. |
Checklist
Points to check this week
Highlighted boxes are the most important. Wednesday’s PCE inflation and Friday’s jobs report (both 8:30 am ET / GMT−4) are the two releases that decide whether the Fed’s hawkish path holds.