A Fed Rate Hike Could Be the First of Many. Stocks Are on Red Alert.

Federal Reserve Chairman Kevin Warsh on screen during a plenary session at the 2026 G20 Financial meetings. (Melissa Sue Gerrits/Getty Images)

Key Points

• The 10-Year Treasury yield rose to 5.03% on Tuesday, on pace for its highest close since July 2007.
• Investors fear the Federal Reserve will hike interest rates four or five times by next summer to curb a flare-up in inflation.
• Traders on Tuesday priced in a 31% probability that rates rise by one point by June 2027, up from 3% a month ago.

The AI selloff may be stealing the spotlight —but it’s surging borrowing costs that pose a much bigger threat to stocks and other assets.

The 10-Year Treasury yield rose 4 basis points to 5.03% on Tuesday—on pace for its highest close since July 2007, per Dow Jones Market Data. It’s added nearly 60 basis points over the past three months.

That sums up what investors are worried about right now. Their big fear is that the Federal Reserve will hike interest rates several times—rather than once or twice—by next summer.

Just look at how the odds have shifted.

Traders on Tuesday were pricing in a 31% probability that rates rise by 1 percentage point between now and June 2027, according to the CME FedWatch tool. The chances stood at just 3% a month ago.

Created with Highcharts 9.0.1U.S. 10 Year Treasury NoteSource: Tullett PrebonAs of Sept. 15, 9:07 a.m. ET

Created with Highcharts 9.0.1April 2026Sept.4.14.24.34.44.54.64.74.84.95.05.1%

Federal Reserve Chairman Kevin Warsh has mostly stayed quiet since assuming office in May, but now may have to tighten multiple times to curb a flare-up in inflation. President Donald Trump won’t like that.

He won’t be the only one. Fed tightening tends to be bad news for both stocks and bonds. S&P 500 futures fell 0.1% ahead of the open Tuesday, while Dow Jones Industrial Average futures fell 0.3% and Nasdaq-100 futures were down 0.1%.

The market’s go-to safe havens could also struggle. Gold and cryptocurrencies were both falling on Tuesday, although the U.S. dollar looked set to extend a recent rally.

If the Fed’s policy decision on Wednesday does mark the start of a rate-hiking cycle, then the recent wobble for chip and memory stocks would be the least of the market’s worries.

Write to George Glover at george.glover@dowjones.com

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