Fed Revives ‘Higher For Longer’ Narrative With Rate Hike — Strategist Calls It A ‘Policy Mistake’

• All three U.S. benchmark indexes closed lower on Wednesday following the Fed’s policy rate decision. 
• Meanwhile, analyst Lark Davis indicated that U.S. President Donald Trump’s recent economic decisions forced the Fed to hike interest rates. 
• Trump said earlier on Wednesday that U.S. benchmark rates "should be 1%, or less," noting that strong economic investment and national creditworthiness justified lower interest rates rather than a rate hike. 

The Federal Reserve on Wednesday hiked benchmark interest rates by 25 basis points to the target range of 3.75% to 4.00%, in line with market expectations, but market participants are increasingly divided on the ‘higher-for-longer’ narrative. 

The Fed increased interest rates for the first time since 2023, and the central bank also signaled that one more rate hike is on the cards for this year. 

Strategist Thinks Fed Decision Is A Mistake

James E. Thorne, Chief Market Strategist at Wellington Altus, commented in a post on X that the Fed’s hike has pushed markets into a negative growth shock. “The Hall of Mirrors lives! One has to question Warsh’s desire to change the Fed’s reaction function. Yes a policy mistake,” Thorne said. 

Benchmark U.S. indexes closed lower on Wednesday following the policy decision. The Dow Jones Industrial Average fell 1.21% at close, while the S&P 500 and the Nasdaq Composite lost 0.45% and 0.01% respectively. 

Economist Peter Schiff said in a post on X that Fed Chair Kevin Warsh was “backed into a corner” to make the decision.

“Warsh was not being honest when he said the Fed made the rate hike decision on its own. I think the Fed was backed into a corner, and with a 90% probability of a hike, it had to deliver or lose credibility. It was put up or shut up. Unfortunately, the Fed didn't put up enough,” Schiff said. 

Fed Decision Forced By Trump’s Moves, Analyst Says 

Meanwhile, analyst Lark Davis indicated that U.S. President Donald Trump’s recent economic decisions forced the Fed to hike interest rates. 

In a post on X, Davis noted, “You've got two active wars, tariffs hammering supply chains, an energy shock sending oil through the roof, and an AI investment boom all running hot simultaneously. The Fed didn't hike despite Trump's policies. It hiked because of them.” 

“You don't get to light the fire and then complain the room is warm,” he added. 

Trump said earlier on Wednesday that U.S. benchmark rates "should be 1%, or less," noting that strong economic investment and national creditworthiness justified lower interest rates rather than a rate hike. 

"LOWER THE INTEREST RATES FOR THE UNITED STATES OF AMERICA, AND FAST!" Trump said in a post on Truth Social.

Meanwhile, Strive Inc. (ASST) CEO Matt Cole said in a social media post that the Fed’s rate-hike decision “doesn't matter” and urged markets to “zoom out.”

Market commentator The Kobeissi Letter said in a post on X that the Fed’s decision aligned with the market and that “lower rates are not coming as long as the current energy crisis continues.”

“There simply is no scenario where rate cuts are warranted with $100+ oil prices and 3.5%+ inflation, aside from an economic depression,” it said.

At the time of writing, Brent crude futures expiring in November were down about 1% to $104.72 a barrel, while WTI crude futures expiring in October also fell more than 1% to $101.31 per barrel.

The Kobeissi Letter said that it believes “a long and bumpy road” appears to be ahead of the Fed as it continues its 60-straight-month battle against inflation. “‘Higher for longer’ has returned,” it noted. 

Meanwhile, according to a report from CNBC, UBS said in a note to investors on Wednesday that they should spend less time focusing on the first rate hike and more time monitoring the outlook for economic growth, corporate earnings and inflation,  as these were more important for future stock returns.

This Analyst Sees Two Rate Cuts In 2027

Meanwhile, Morningstar said in a post that while the Fed reacted in line with market expectations at its September policy meeting, it forecasts a return to monetary policy loosening in 2027 amid weakening economic demand and normalizing inflation. 

“We expect the Fed to cut twice in 2027 (undoing the two hikes in 2026) and a further four times in 2028. That will bring the federal funds rate down by 1 percentage point compared with current levels,” it said. 

How Are Markets Reacting?

Among ETFs tracking benchmark indexes, the SPDR S&P 500 ETF (SPY) was up 0.55% at the time of writing amid ‘extremely bearish’ sentiment.

Meanwhile, the SPDR Dow Jones Industrial Average ETF Trust (DIA) and the Invesco QQQ Trust (QQQ) climbed 0.64% and 0.70%, also amid ‘extremely bearish’ sentiment, respectively.

The iShares 20+ Year Treasury Bond ETF (TLT) was up 0.33% amid ‘extremely bearish’ sentiment.

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