The Fed made its move on interest rates yesterday.

Major indexes whipsawed into the close and through after hours, but this is our first chance to trade the catalyst intraday.

The market showed its hand … and I have a plan to trade the momentum.

The Fed’s interest rate ranks among the most closely watched catalysts in the entire economy.

It sets what U.S. banks pay to borrow from each other, which filters into most of the borrowing costs across the economy.

Add in the inflation threat from the Iran war, energy prices, and everything attached to them…

Plus Trump’s non-stop cry for lower rates to bolster his economy.

That made yesterday’s decision one of the most important of the year…

Good thing I have a plan to trade market-moving catalysts (like this one).

The Interest Rate Issue

At 2:00 PM ET yesterday, the Fed hiked a quarter point and lifted the target range to 3.75% to 4%.

The market’s mentality (and the move that followed) makes sense once you see how we got here.

The funds rate sat at 3.5% to 3.75% for all of 2026.

But at July’s meeting, three FOMC members dissented. They wanted rates higher due to sticky inflation. That was more than a month ago…

Then at Jackson Hole in late August, Chairman Kevin Warsh called the 2% PCE objective a fixed target and pointed to inflation running 3.7% over twelve months and 4.1% over six.

A blowout August payroll report came next, with 162,000 jobs created against an estimate near 53,000. Businesses hiring that hard through an inflation spike showed an economy running hot, and that puts the Fed on a slippery slope.

Then August PPI printed 5.4% annually, and CPI held at 3.4%, stuck right where it sat in July.

The Iran war drives this inflation spike. Traffic through the Strait of Hormuz has collapsed to around a dozen vessels a day, and U.S. crude has climbed more than 50% since the war began on February 28, more than six months ago.

One recent headline worries me more than the rest. Diesel just hit a record $6 a gallon.

Diesel runs the trucks, farms, freight trains, and heavy equipment that keep the country moving. It factors into the cost of almost every physical product in the country.

With the inflation threat looming, the market called a September 16 rate hike close to a lock (90% probability).

They were right. 

The Market’s Reaction

The S&P 500 opened up 0.2% and tacked on another tenth in the minutes after the decision. Then it gave back more than 1.3% off that high and spent the rest of the afternoon underwater.

The Fed hasn’t raised rates in three years, and every voting member backed this one (a sharp turn from July, when three of them dissented the other way).

Warsh gave the market no cover either. “Inflation is too high and has been for too long,” he said. The dot plot echoes him. Twelve of 18 members pencil in one more quarter-point hike before year-end, and four want 50 basis points.

The 2:30 press conference did the damage. Warsh called inflation elevated and put the Fed’s predominant focus on price stability, which killed any dovish read on the statement. The 10-year yield ran to its highest level since 2007, and crude held above $100.

But with only a 1%ish drop, I think we could actually see a bounce here. All of this was priced in.

This is how I’ll trade the next move. 

Be good (and be good to others),

Ben Sturgill

Past performance does not indicate future results. Not typical.