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September ‘26 Investment Insights: The Fed Raises Rates as Earnings Keep Climbing

Zenith Wealth Partners

September 24, 2026

Investment Insights
The Fed Raises Rates as Earnings Keep Climbing

A month ago, the big question was whether the Federal Reserve’s next move would be a cut or a hike. September answered it. The Fed raised interest rates for the first time this cycle, inflation stayed firm, and Treasury yields moved toward 5%. Corporate earnings, meanwhile, kept climbing. Here’s what changed this month, what didn’t, and what it may mean for investors heading into the final quarter of 2026.

The Fed Raises Rates to Bring Inflation Back to Target

At its September 15–16 meeting, the Federal Reserve raised the federal funds target range by a quarter point to 3.75%–4.00%. In July, three members had voted to raise rates while the majority held steady. This time the decision was unanimous. The Committee described economic activity as “expanding at a solid pace” and said the increase should support “a timelier return to the Committee’s 2 percent goal” (Board of Governors, “FOMC Statement”).

The Fed’s updated projections help explain the decision. Policymakers now expect PCE inflation of 3.7% and core PCE inflation of 3.4% by the end of 2026, before inflation eases to 2.3% and 2.5%, respectively, in 2027. They also nudged their 2026 growth forecast up to 2.3% and lowered their unemployment forecast to 4.1%. The median projection for the federal funds rate at year-end rose to 4.1%, up from 3.8% in June (Board of Governors, “Summary of Economic Projections”).

Why it matters: Many investors had been positioned for rate cuts. The Fed has made clear that bringing inflation down comes first. BlackRock Investment Institute described the hike as helping to “reestablish” the Fed’s credibility on inflation (BlackRock Investment Institute).

Inflation and Jobs Came In Firmer Than Expected

August’s inflation data showed why the Fed acted. Headline CPI rose 0.4% for the month, up from 0.1% in July, and held at 3.4% over the prior 12 months. Core CPI, which excludes food and energy, rose 0.3% in August and 2.4% over the year (U.S. Bureau of Labor Statistics, “Consumer Price Index”). After July’s encouraging report, August reminded everyone that progress on inflation rarely moves in a straight line.

The labor market also looks sturdier than it did last month. Employers added 162,000 jobs in August, and revisions turned July’s previously reported loss of 23,000 into a gain of 21,000. The unemployment rate held at 4.1%, and average hourly earnings rose 3.1% over the year (U.S. Bureau of Labor Statistics, “Employment Situation”). In August, the concern was that the labor market might be cooling too quickly. The latest data eases that worry.

Economic growth continues at a moderate pace. The BEA’s second estimate puts second-quarter real GDP growth at 1.5% annually, supported by consumer spending, exports, and investment (U.S. Bureau of Economic Analysis).

Bond Yields Move Higher

Treasury yields rose through September as markets adjusted to a more hawkish Fed. The 2-year Treasury yield climbed from 4.39% on September 1 to 4.71% on September 22, while the 10-year yield rose from 4.79% to 4.96% (U.S. Department of the Treasury).

Short-term rates aren’t the only factor. BlackRock calls the current environment “the 5% world” and expects borrowing costs to stay elevated as AI infrastructure spending and government borrowing compete for the same pool of capital (BlackRock Investment Institute).

For investors, higher yields cut both ways. They can weigh on bond prices and stock valuations in the short run, but they also mean bonds offer more income than they have for much of the past decade.

Earnings Remain the Market’s Foundation

Corporate profits continue to give markets solid footing. According to FactSet, analysts expect S&P 500 earnings to grow 28.9% year over year in the third quarter, up from 26.7% at the end of June. Estimates typically fall during a quarter, so this is an unusual pattern. More companies have also issued positive third-quarter earnings guidance (72) than negative guidance (43). Analysts project earnings growth of 31.8% for full-year 2026 and 15.2% for 2027 (Butters).

Valuations have also become more reasonable as earnings have grown faster than prices. The S&P 500’s forward 12-month price-to-earnings ratio stands at 19.1, below its five-year average of 19.8 and in line with its 10-year average of 19.0 (Butters). That compares with 20.0 in mid-August.

BlackRock remains overweight U.S. equities and AI, where it believes “resilient earnings can help absorb higher financing costs.” In credit, it favors “attractive coupons away from the two extremes: the weakest borrowers and companies issuing large amounts of debt” (BlackRock Investment Institute). We see that as a useful reminder that quality matters more when money costs more.

The same themes are playing out in private markets. New York Life Investment Management’s 2026 Global Private Markets Outlook finds that “resilient fundamentals and long-term demand continue to support private markets,” even as higher rates and geopolitical uncertainty create “a more differentiated opportunity set.” In private equity, NYLIM sees a recovery that “has room to run” as financing conditions improve, with particularly attractive opportunities in the middle and lower middle market. It also points to AI, energy, and digitalization as long-term drivers of infrastructure demand (Hirsch).

Liquidity in private markets, a key concern for investors in recent years, is also improving. According to PitchBook, secondary deal volume reached a record $121 billion in the first half of the year, and more than half of it came from GP-led transactions such as continuation funds (Shi). The IPO window is showing signs of life as well, with wearable maker Oura planning an offering of up to $2.2 billion on Nasdaq at a proposed valuation of about $14.9 billion (Robbins).

What We’re Watching Heading Into the Fourth Quarter

  1. The Fed’s next steps. The Fed has shown it’s willing to raise rates to bring inflation down. The September and October inflation reports will help shape whether it moves again at its remaining 2026 meetings.
  2. Long-term yields. With the 10-year Treasury yield near 5%, borrowing costs for businesses, homebuyers, and the government remain elevated. A further rise could weigh on stock valuations and housing activity.
  3. Third-quarter earnings season. Estimates have risen during the quarter, which raises the bar. Revenue growth, margins, and guidance will matter as much as headline beats.
  4. Credit quality in private lending. Higher rates are testing some borrowers. PitchBook reports that the number of companies in business development company (BDC) portfolios showing signs of credit pressure rose to 583 as of June 30, up 25% since the end of 2025, with software companies making up the largest share (Lukatsky). NYLIM still sees support for middle market direct lending from “wider spreads and resilient fundamentals” (Hirsch). In our view, that makes careful manager and loan selection especially important.
  5. Widening gaps between private market managers. Capital is increasingly flowing to established specialists. In the third quarter, two firms accounted for more than 80% of the $31.3 billion raised by tech-focused private equity funds (Lai). NYLIM notes that “the path to outperformance is narrowing” (Hirsch), which means differences between managers may matter more than ever.
  6. Event risk. The November midterm elections and ongoing geopolitical developments are potential sources of short-term volatility.

The Bottom Line

The backdrop remains constructive, with strong earnings, a steady labor market, and valuations close to long-term averages. A Fed that is still fighting inflation and long-term yields near 5% are good reasons to expect some volatility, but not reasons to abandon a long-term plan. We continue to favor quality, broad diversification, and purposeful fixed-income exposure over reacting to any single data release or headline.

For some investors, alternatives and private market investments may also have a role alongside traditional stocks and bonds, offering access to companies, lending opportunities, and real assets that aren’t available in public markets. These investments come with trade-offs, including limited liquidity, higher fees, and wider differences in results between managers, so whether they fit depends on each investor’s goals, time horizon, and liquidity needs.

Have questions about what this month’s data means for your portfolio? Schedule a conversation with the Zenith Wealth Partners team →

Works Cited

– Zenith Wealth Partners

All written content is for information purposes only. Opinions expressed herein are solely those of Zenith, unless otherwise specifically cited. Material presented is believed to be from reliable sources and no representations are made by our firm as to another parties’ informational accuracy or completeness. All information or ideas provided should be discussed in detail with an advisor, accountant or legal counsel prior to implementation.

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institutional investment management,Investment Management,Long term investors,Market Outlook
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