The Week the Fed Finally Hiked, and Everything Moved

After months of buildup, the Federal Reserve did it: on Wednesday it raised interest rates by a quarter point to a target range of 3.75 to 4.00 percent, its first hike since 2023, in a unanimous 12 to 0 vote. The projections went further, with 16 of 18 officials expecting at least one more increase. The era of waiting for cheaper money is over.

Markets took the message hard at first. Stocks fell sharply on the decision, with the Dow dropping 631 points Wednesday as Chair Kevin Warsh struck a hawkish tone, and the 10-year Treasury yield pushed above 5 percent to its highest level since 2007. For a day, the hawkish hike was all the market could see.

Then the pressure eased. Oil, which had spiked above 108 dollars on the Gulf conflict, tumbled back toward 104 on hopes a key Saudi pipeline would be restored, and as crude fell and yields calmed, stocks rebounded Thursday with the Nasdaq up 1.7 percent. Gold made the same round trip, breaking below 4,300 then jumping back to about 4,369.

By Friday the dust settled into a split. The Dow slipped again to close the week lower for a third straight time, its first negative month shaping up in six, while the Nasdaq held onto gains, and the 10-year yield finished right at 5.006 percent. Through it all, Bitcoin barely moved, holding near 77,000 dollars.

The caution is that the story is only beginning. A first hike with more projected means the market now has to price a genuinely higher-for-longer world, and the calm at week's end could break as easily as it formed if inflation data or the Gulf conflict turns. One week set the direction, not the destination.

So the week delivered the turn everyone had been bracing for, and every major market had to adjust to it in real time. Fed hiked, oil spiked and fell, yields at 2007 highs. This was the week the era of cheap money officially ended. The Fed hiked, promised more, and every market spent the next two days figuring out how to live with it.