It’s been an eventful few weeks for investors. Interest rates have increased, inflation remains stubborn, and the stock market has had some uncomfortable days. When several things happen at once, it’s natural to wonder whether something has fundamentally changed and whether we should be doing something differently. That’s a healthy question. Yet one of the things we try to separate at Perennial Edge is what matters to your long-term financial plan from what simply feels important because it’s dominating the news today. The Federal Reserve’s latest decision to raise interest rates is a good example. Rates moved higher. Markets reacted. So, what does it actually mean for your investments and financial plan?
The Fed Raised Rates. Now What?
The Federal Reserve (Fed) recently raised its benchmark interest rate by a quarter percentage point, the first increase since 2023. Higher rates can create challenges—borrowing becomes more expensive, mortgages and business loans can cost more, and higher bond yields can create additional competition for stocks.
Yet higher rates alone don’t tell us where the economy or stock market goes next. Here are three things we are keeping in perspective:
1. Higher Rates Don’t Automatically Mean a Weak Economy
This may seem counterintuitive, yet the Fed is raising rates in part because the economy has remained relatively resilient and inflation remains above its target. While today’s rates may feel high compared with what we became accustomed to, they aren’t particularly unusual historically.
Capital Group looked at long term government bond yields going all the way back to 1871. Yields were between 3% and 6% during 62% of those periods. In other words, the near zero interest rate environment was far more unusual than what we’re experiencing today. That doesn’t mean higher rates are painless. Housing and some businesses may feel the impact more than others. It does mean the economy can continue to grow with interest rates at these levels.
2. Higher Rates Don’t Automatically Mean Bad Stock Returns
It can be tempting to hear “the Fed is raising rates” and conclude that stocks must go down. History isn’t that simple. Businesses have continued to earn money, innovate, pay dividends and grow during periods of higher interest rates and inflation. Stock market returns have been positive across many decades with very different levels of inflation and interest rates.
What can change is which companies perform best. Companies with strong balance sheets, dependable cash flow and less reliance on borrowing may be better positioned than businesses whose valuations depend heavily on profits far into the future. That’s one reason diversification matters. We don’t want a portfolio that requires one particular type of company, interest rate environment or economic forecast to be right.
3. Bonds Are Doing Their Job Again
For years, one of the challenges for investors was that high-quality bonds simply didn’t pay very much. That’s changed. Higher interest rates mean bond investors can now earn considerably more income than they could during the ultra-low-rate environment. The Bloomberg U.S. Aggregate Index was yielding around 5%, providing both meaningful income and a potential cushion against future volatility. That doesn’t eliminate risk, and bond prices can still fluctuate. Yet it means the more conservative part of a diversified portfolio can once again provide meaningful income. For someone approaching, or already enjoying financial independence, that can be particularly valuable.
So, Should We Be Changing Anything?
Maybe, yet likely no. For clients approaching financial independence, or already there, much of the preparation for periods like this has already been done. We spend a lot of time thinking about how much money you may need over the next several years, what should remain invested for longer term growth, and what should be protected from short term market volatility. We are vigilant about maintaining those different buckets so that a difficult stretch in the stock market doesn’t suddenly force a change in your lifestyle or financial plan. That preparation matters.
If you need $100,000 for living expenses, a home project or another major purchase next year, we don’t want to be in a position where we have to sell stocks after a significant decline to fund it. Likewise, money you may not need for 10, 15 or 20 years shouldn’t necessarily be managed based on what the Federal Reserve did last week.
There will certainly be times when we make adjustments. We rebalance portfolios, replenish cash reserves, take advantage of tax opportunities and revisit investments as circumstances change. Those decisions should be driven by your plan, not by a scary headline.
For most Perennial Edge clients, the question right now is not “What should we change?” It is “Are we still well positioned for what we knew would eventually happen?” In most cases, the answer is yes. That’s the benefit of planning for volatility before it arrives.
Perennial Edge Tip: Separate the Headline from the Decision
When markets become volatile, ask yourself a simple question: “Has something changed in my financial life, or has something changed in the news?” If your goals, time horizon, cash needs and financial plan haven’t changed, a market headline may not require an investment decision. If something in your life has changed, that’s different. Those are exactly the conversations we want to have. As always, if recent market volatility or higher interest rates have you wondering about your plan, give us a call. We’re happy to talk it through.
** Federal Reserve Board, Implementation Note, September 16, 2026; Federal Reserve Open Market Operations historical rate table; Capital Group, What higher interest rates could mean for stocks and bonds, September 3, 2026; Bloomberg. Data as of September 2026.
