What a difference a year makes. In fall 2025, markets expected 2026 to bring rate cuts. The Trump administration’s tariffs had been muted, the job market was shaky, and disinflation was the presumed economic outcome. But much like the calls for a recession in 2023, the real world has a funny way of making prognosticators look foolish. The Federal Reserve raised rates for the first time in three years on Sept. 16, moving the benchmark overnight rate up 25 basis points (bps). The vote was unanimous, and many Fed officials see room for more hikes before year-end.
The immediate market reaction was a sell-off, but the following day stocks surged despite prospects of further hikes in 2026 (and 2027). A new hiking cycle is usually good news for the financial sector, and many investors will screen for banks that benefit most in that environment. However, banks aren’t the only businesses in finance, and many brokers and exchanges stand to reap rewards from rising short-term rates.
