The Fed hit pause, but December looks like a hike

Good morning. The Fed left its benchmark rate at 3.75% to 4% last night, but markets didn't hear “we're done.” They heard “we're coming back in December.” Two officials actually voted to raise rates right away, and a December hike is now treated as close to a sure thing. Chair Kevin Warsh also slipped in a surprise: starting next year, the Fed will hold fewer rate-setting meetings.

The reason the Fed is leaning toward a hike is simple: prices. Houthi rebels struck a Saudi refinery, deepening fears that the Middle East war will drag on, and Brent crude climbed above $116 a barrel, its highest in six months. Europe's benchmark gas price also touched €100 for the first time in years. When energy gets pricier, everything from plane tickets to groceries tends to follow, which is exactly what keeps the Fed on edge.

You can already see it in travel. With jet fuel running near double its prewar level, airlines are even shying away from locking in future fuel costs, and Frontier, the largest U.S. budget carrier, said its fares jumped 71%. Meanwhile, the Bank of Canada raised rates for the first time since 2023. Central banks are turning back toward fighting inflation.

Stocks, for their part, kept their cool. The Dow closed up nearly 100 points, and chipmakers got an early lift from blowout results at South Korea's SK Hynix. Honestly, investors seemed more focused on Microsoft and Alphabet, which were set to report after the closing bell, than on the Fed.