The FRB has moved.
It raised the policy rate by 0.25% to a range of 3.75–4.00%. This is the first hike since July 2023, marking a gap of 3 years and 2 months. Moreover, the FRB signaled another potential hike within the year.
What truly matters this time isn't just the 0.25% figure.
The US, Europe, and Japan are raising rates at the same time.
The Anomaly of Simultaneous Rate Hikes in Japan, the US, and Europe
This FRB move completes an abnormal situation.
- ECB: 0.25% hike on September 10
- FRB: 0.25% hike on September 16 ← We are here
- BOJ: A 0.25% hike at the September 18 meeting is almost certain ← Tomorrow
In a Reuters survey, 66 out of 68 economists predicted a BOJ rate hike.
If the BOJ actually raises rates, the three pillars of the global economy—the US, Europe, and Japan—will be tightening monetary policy at nearly the same time.
This is no coincidence.
The cost of money is rising globally, simultaneously.
The World Is Competing for Capital
Countries are now beginning massive domestic investments:
- Reshoring supply chains
- Building semiconductor factories
- Investing in AI data centers
- Upgrading power plants and grids
- Expanding defense budgets
- Developing shipyards and ports
- Updating aging infrastructure
All of these require enormous capital. Governments and corporations worldwide are seeking funds at the same time.
However, available capital is limited. When more borrowers seek funds, the price of money (interest rates) rises. This is the structural upward pressure on long-term rates.
Then, $100 Oil Added Pressure
Additionally, Saudi Arabia's East-West oil pipeline was attacked and shut down. Crude oil prices broke through $100 per barrel.
Rising energy costs increase not only gasoline and electricity bills but also transportation, manufacturing, and food prices. If companies pass these costs to consumers, inflation persists. If they cannot, profits shrink. Either way, the economy suffers.
Central banks cannot easily cut rates to support growth.
Currently, three factors are happening at once:
- Structural increase in demand for capital
- Rising production costs due to deglobalization
- Rising energy prices due to war
Conditions for rate cuts have receded further.
The Terrifying Future Revealed by FRB Projections
The FRB's latest inflation outlook shows:
- 2026: 3.7%
- 2027: 2.3%
- 2028: 2.1%
- 2029: Finally reaching 2%
The FRB predicts that inflation will not return to the 2% target until 2029.
Crucially, even as the inflation rate slows, prices do not revert to previous levels; they simply rise more slowly. The FRB itself acknowledged that "for the next three years, high prices will continue, burdening mortgages and corporate debt."
Even more severe are the policy rate projections:
- Within the year: One more hike
- 2027: No cuts
- 2028: Cuts finally begin
- 2029: Continued cuts
Previously, cuts were expected to start in 2027. Now, they have been pushed back to holding steady. The timeline for lower rates has been delayed by another year.
Furthermore, the projected policy rate for the end of 2029 is 3.50–3.75%, still above the long-term neutral rate of 3.2%. Normalization remains incomplete even in 2029.
This FOMC communicated more than a simple 0.25% hike. It confirmed that high inflation and high interest rates are no longer temporary anomalies but the baseline for the coming years.
Return to Low Rates Has Receded Again
Markets have repeatedly hoped:
"Inflation will soon subside."
"Rate cuts will soon begin."
"Rates will return to normal levels."
But each time, normalization has been delayed. This time, cuts expected in 2027 have slipped to 2028. Even in 2029, rates remain above the long-term forecast. This is not temporary tightening.
The global interest rate structure may have permanently shifted higher.
Companies that expanded using cheap debt. Real estate bought despite low yields. Growth stocks valued solely on distant future profits. All asset prices must be recalculated assuming higher rates.
Which companies can grow without external funding even if high rates persist for three years?
Investors who hold the answer will survive the next market cycle.
