17.09.2026 - Relief Rally after the Fed

Financial markets are staging a relief rally following yesterday’s Federal Reserve decision, with equities rebounding, bond yields retreating and volatility falling.

The Federal Reserve raised interest rates by 25 basis points to 3.75%–4.00%, with policymakers voting unanimously 12–0 in favor of the increase. Fed Chairman Kevin Warsh delivered a distinctly hawkish message, stressing that inflation “is too high and has been for too long.”

Importantly, the Fed also signaled that yesterday’s move may not be the last. The latest projections show that the large majority of policymakers expect at least one additional rate hike before the end of the year.

Today, the Bank of England left interest rates unchanged at 3.75%, despite UK inflation accelerating to 3.1% in August from 2.9% in July. The decision was made by a 6–3 majority, with three policymakers already voting for a 25-basis-point hike. The Bank also warned that inflation risks have shifted further to the upside.

Tomorrow, the Bank of Japan is widely expected to raise rates by another 25 basis points to 1.25%, which would bring its policy rate to the highest level in 31 years.

Markets:

• Equities: Rebounding after recent losses

• Bonds: yields falling - US 2y yield above 2.69%, US 10y yield above 4.95%, Japan 10y yield 3.0%

• Commodities: Oil prices moving lower, WTI at USD 101/barrel and Brent around USD 104/barrel
  Precious metals prices higher, gold USD 4’360/oz, silver above USD 66/oz

• Currencies: US dollar almost unchanged after yesterday's strong move - Japanese Yen unchanged USDJPY 156

• Cryptos: joined the relief rally - Bitcoin above USD 76k

• Volatility: The VIX index falls back below 16 (opportunity for hedging!)
  

My View: I mentioned ahead of the Fed decision that we could see a relief rally once the uncertainty surrounding the meeting disappeared. That rally has arrived, but I believe it could come to an end relatively quickly.

Listening carefully to Kevin Warsh’s press conference, the message was clearly hawkish. Inflation remains too high, and the Fed appears prepared to tighten monetary policy further if necessary. One 25-basis-point increase will not suddenly bring inflation back toward the Fed’s 2% target.

There has, however, been one important source of relief over the past two days: oil prices have moved lower, although they remain clearly above the USD 100 level. At the same time, oil transportation costs have skyrocketed, adding another layer of pressure to overall energy costs. Tanker freight rates have recently reached record highs amid continued disruptions around the Strait of Hormuz.

Therefore, the recent decline in headline oil prices should not be interpreted as an all-clear for inflation. Unless oil prices and transportation costs decline substantially, I see a strong case for the Fed to raise rates again as early as October.

So the question is: Why should the relief rally continue?
Almost all the major risk factors that existed before the Fed meeting are still there: elevated inflation, historically high bond yields, oil above USD 100, geopolitical uncertainty, pressure on consumers and governments from higher borrowing costs, and the prospect of further monetary tightening.

What did change yesterday is that the Fed demonstrated its willingness to act despite political pressure, therefore strengthened Fed credibility and independence.

Investor sentiment has quickly deteriorated toward “Extreme Fear”, which historically can create attractive entry points for risk assets. This time, however, I remain cautious.

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