The Federal Reserve’s purpose is two-fold. On the one hand, it attempts to keep goods prices stable, which effectively means keeping inflation in check. On the other hand, it attempts to maintain full employment. These two goals can be at odds at times, as strong growth boosts employment but can lead to higher inflation. That said, since the turn of the century, the Fed has provided the market with the so-called “Fed put.”
New Fed chairman Kevin Warsh is quickly making good on his promise to end the Fed put, with material short-term and long-term implications for rate-sensitive stocks.
Image source: The U.S. Federal Reserve.
The Fed isn’t playing the same game
The 2% inflation target the Fed is proposing is deliberately limited. No longer is the Fed offering guidance. And there aren’t any hints being provided about where things might go next, which might be gleaned if there were a soft target. At this point, Kevin Warsh has taken away the training wheels, forcing investors to figure things out on their own. Notably, bond yields have been rising without any intervention from the Federal Reserve, driven by investor action. That’s how things used to work until the dot-com crash in 2000.
At the turn of the century, the Federal Reserve started providing guidance to a highly turbulent market. It expanded its guidance during the Great Recession, when there were legitimate concerns that the financial system was collapsing. The guidance provided led investors to believe that the Fed would step in to save the market if trouble arose. That was the so-called Fed put, even though there is no official statement about such a thing existing. The negative consequence of the Fed put was that investors and companies began to rely on it, leading them to take on additional risk. With the put clearly gone, uncertainty has risen dramatically.
Today’s Change
(-0.30%) $-0.19
Current Price
$62.21
Key Data Points
Market Cap
Day’s Range
$62.20 – $62.96
52wk Range
$55.86 – $67.94
Volume
4M
Avg Vol
5.8M
Gross Margin
50.82%
Dividend Yield
5.19%
Higher rates and more volatility
The most obvious impact right now is rising rates, which increase borrowing costs. That hits investors who use margin debt, as well as companies that use heavy leverage, like real estate investment trusts (REITs). Even large, financially strong REITs like Realty Income (O -0.30%) will have to adjust. This may help to explain why the company just issued its first convertible debt, noting that convertible bonds often have lower interest rates.
Today’s Change
(0.63%) $2.29
Current Price
$363.25
Key Data Points
Market Cap
Day’s Range
$359.27 – $363.57
52wk Range
$279.10 – $366.50
Volume
5.5M
Avg Vol
8.9M
Dividend Yield
1.66%
Higher rates aren’t all bad news, however, since it means banks like JPMorgan Chase (JPM +0.63%) can charge more on the loans they make. Improved net interest income boosts profits, with JPMorgan Chase’s net interest income rising 10% year over year in the second quarter of 2026. That said, the company will eventually have to raise what it pays on deposits, so there’s an offset to the positives that higher rates generate. The key takeaway is that there are positives and negatives to consider from increased rate uncertainty.
Rates don’t move in only one direction
Right now, with less direction from the Fed, rates are rising amid inflation concerns. But there’s a long-term issue to consider here, as well. The uncertainty won’t only work in one direction. There will likely be times when rates fall, as well. So, as an investor, you need to take the Fed’s lack of additional guidance to heart and be ready to see market and rate volatility increase relative to the last quarter of a century. And that, in turn, will likely mean more volatility for rate-sensitive stocks.