What Fed Rate Hikes Really Mean for Your Long-Term Portfolio

Wyatt Lewis |

October Market Update: What Fed Rate Hikes Really Mean for Your Long-Term Portfolio

Wyatt Lewis, Lewis Financial LLC
 
 
 
 
 
 
 
 
 
 
Wyatt Lewis | Financial Advisor
September 29, 2026
 
Former Federal Reserve Chair Janet Yellen once noted that "monetary policy is not a panacea."1 In other words, the Fed's tools can help manage economic symptoms, but they cannot fix every underlying problem. The Fed's main goals are to support jobs and keep inflation under control, but it responds to economic conditions rather than directing them.
 
Right now, the biggest challenge is persistent inflation, driven largely by higher oil prices tied to the ongoing conflict in Iran and the closure of the Strait of Hormuz. The Fed cannot resolve these geopolitical issues through interest rate policy, but it can try to prevent rising energy costs from spreading to other areas of the economy. Understanding this context helps long-term investors think more clearly about what Fed decisions mean for their portfolios.
 

The Fed's latest rate hike was widely expected by markets

Federal Funds Rate graphic

At its September meeting, the Fed raised its benchmark interest rate by 0.25%, bringing it to a range of 3.75% to 4.00%. This was the first rate increase in three years, following a series of rate cuts from September 2024 through December 2025. Because this move was widely anticipated, markets absorbed the news without major disruption.2
 
This rate hike is largely a response to higher energy prices, with oil still near $100 per barrel. Economists call this "cost-push inflation," meaning supply disruptions are pushing prices up. This is different from "demand-pull inflation," where a booming economy causes consumers to spend more, driving prices higher. Supply-driven price increases are often seen as temporary, since the underlying disruptions tend to resolve over time.
 
New Fed Chair Kevin Warsh has moved away from the practice of "forward guidance," where the Fed signals its future plans in detail. Instead, he wants markets to focus on economic data rather than Fed forecasts.3 This approach means that key data points, such as employment, inflation, and economic growth, carry even more weight for investors trying to understand the outlook. Investors assigned more than a 90% probability to this rate hike before the meeting took place.4
 

Rate hikes are a normal part of economic cycles

Fed Rate Hike Cycles, graphic

Many investors assume that rising interest rates are bad for financial markets. In reality, the impact depends on why rates are rising. It is quite common for stock markets and interest rates to move higher at the same time, particularly later in an economic expansion. A healthy economy with strong corporate earnings can support both rising stock prices and higher rates.

Fed officials currently project one more rate increase later this year, followed by a pause through 2027, with only a gradual decline after that. However, these projections can shift quickly as economic conditions change, so it is important not to place too much weight on any single forecast. The chart above illustrates how rate hike cycles have unfolded across many different economic environments over the years.
 

Staying invested is the most effective long-term response to inflation

Growth of $1 since 1926, graphic

The accompanying chart shows how financial markets have helped investors build wealth over the past century, through recessions, geopolitical crises, and many Fed policy changes. Since 1926, inflation has caused prices to rise by 19 times, meaning something that cost $1 then costs $19 today. Despite this, both stocks and bonds have outpaced inflation over that period, helping investors grow and protect their purchasing power over time.5

Markets do not move in a straight line, and uncertainty is always present. Maintaining a well-balanced portfolio that matches your long-term financial goals is far more important than trying to predict or react to the Fed's next move.

 
The bottom line? 
The Fed's latest rate hike reflects inflation due to higher oil prices. Investors are best served by focusing on long-term goals and maintaining balanced portfolios rather than reacting to each Fed decision.
 

Best regards from your Advisor,
Wyatt Lewis
 

References
4. Clearnomics research and CME Group data, as of September 16, 2026
5. Clearnomics research using Bureau of Labor Statistics and Standard & Poor's data, as of September 18, 2026
 

Index Descriptions

S&P 500

The Standard & Poor's 500 Index is a capitalization-weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries. The modern design of the S&P 500 stock index was first launched in 1957. Performance prior to 1957 incorporates the performance of the predecessor index, the S&P 90.


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This material is for general information only and is not intended to provide specific advice or recommendations for any individual. There is no assurance that the views or strategies discussed are suitable for all investors or will yield positive outcomes. Investing involves risks including possible loss of principal. No investment strategy or risk management technique can guarantee return or eliminate risk in all market environments Any economic forecasts set forth may not develop as predicted and are subject to change.

References to markets, asset classes, and sectors are generally regarding the corresponding market index. Indexes are unmanaged statistical composites and cannot be invested into directly. Index performance is not indicative of the performance of any investment and do not reflect fees, expenses, or sales charges. All performance referenced is historical and is no guarantee of future results.

This information is not intended to be a substitute for specific individualized tax or legal advice. We suggest that you discuss your specific situation with a qualified tax or legal professional. 

Bonds are subject to market and interest rate risk if sold prior to maturity. Bond values will decline as interest rates rise and bonds are subject to availability and change in price.

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International investments carry additional risks, which include differences in financial reporting standards, currency exchange rates, political risks unique to a specific country, foreign taxes and regulations, and the potential for illiquid markets. These factors may result in greater share price volatility.

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