Fed hikes for the first time in three years; markets reel

Good morning. The Fed raised its benchmark rate by a quarter point last night, to 3.75%-4.00%, its first hike in three years and two months. The vote was unanimous at 12-0. The dot plot may matter even more: 16 of 18 officials backed at least one more increase this year.

Chair Kevin Warsh told reporters inflation has been too high for too long. The reasoning has shifted too. On top of the energy shock, the Fed's statement for the first time pointed to AI-driven investment and productivity gains as a reason to tighten. Data helped make the case, with August retail sales up 1.2%, a sign the economy can take higher rates.

Markets reacted to the tone more than the move. Stocks were up early, then sank after Warsh said inflation is still too high, and the Dow fell about 600 points. The 10-year yield pushed past 5%, a level not seen since 2007, and Bitcoin fell alongside bonds to around $75,000. Stocks, bonds and crypto were all sold together.

Politics got loud too. Within hours, President Trump called the decision unfortunate and demanded rates of 1% or lower. Yet a committee led by his own pick voted unanimously to hike, which investors took as proof the Fed's independence is intact.