Good morning The Federal Open Market Committee voted unanimously on Wednesday to raise its key interest rate by a quarter point to between 3.75% and 4%. This is the first increase since July 2023 and the first political step in Chairman Kevin Warsh’s term. The decision puts Warsh at odds with President Trump, who has publicly pushed for a rate cut.
The Fed updated it Projections Experts expect the median key interest rate to be 4.1% by the end of 2026, up from 3.8% in June, suggesting another increase before the end of the year. Officials cited tariffs, an energy shock and rising AI-related capital spending as drivers of inflation. The markets had largely priced in the Fed’s interest rate hike. The shares initially reacted cautiously, but closed in the red. Meanwhile, Treasury yields, already near multi-year highs, rose after the decision.
I asked Yiming Ma, associate professor of finance at Columbia Business School, what this means for corporate finance chiefs.
Your first point: Any variable-rate credit lines or term loans immediately became more expensive. But CFOs shouldn’t view Wednesday as an isolated event. “Usually when the Fed starts raising interest rates, it’s the start of a whole cycle,” Ma said, and markets are already pricing in at least one more hike.
Ma’s strongest advice relates to stress testing: model financing costs and production costs together because they share a common cause. Higher energy prices driven by geopolitical conflicts are driving up both inflation and input costs for oil-dependent companies. Companies may need more liquidity as it becomes more expensive to hold while production costs also increase. “It will be good to test common scenarios,” she said.
It also marks the long end of the curve. Corporate bonds are typically measured by long-term Treasury yields, and both 10- and 30-year bonds have risen sharply, meaning CFOs are facing higher costs on new issues or refinancing across the maturity spectrum.
Regarding the market’s nervous reaction, Ma points to a second, deeper risk: concerns about U.S. debt sustainability, which were already driving Treasury yields to multi-year highs ahead of this week’s meeting.
This background has two implications. The rate hike could reassure markets that the Fed will take aggressive action against inflation. Or it could confirm that inflation is truly entrenched, adding to yield pressures already caused by debt worries. “It’s just very nervous times in the markets,” Ma said, describing the dollar as caught between inflation worries and debt worries pulling in opposite directions.
The bottom line for CFOs: This is not a singles story. It is the beginning of a cycle based on an energy shock and a debate over debt sustainability, which together drive up the cost of financing across all life spans of a company.
Sheryl Estrada
Sheryl.Estrada@fortune.com
Leaderboard
Jerry Leonard was appointed CFO of Vyome Holdings (Nasdaq: HIND), effective September 1, succeeds Robert Dickey, who stepped down as interim CFO. Leonard will serve on a part-time basis under an advisory agreement between Vyome and ClearBridgeCFO, the part-CFO company he founded and which he leads as CEO. He previously served as CFO and Secretary of VSee Health and held a CFO position at iDoc Telehealth Solutions. Earlier in his career, Leonard held financial leadership positions at Voya Financial, IBM and Colgate-Palmolive.
Jim Young has been named Chief Financial and Administrative Officer of Zelisa health technology company, succeeds Brian Gladden, who is retiring. Young, who has more than 20 years of financial leadership experience, comes from cybersecurity insurer Coalition, Inc., where he served as CFO. He previously served as CFO of Broadridge Financial Solutions for nearly a decade and previously held senior financial positions at Visa Inc. Gladden and Young will work together during a transition period that ends Dec. 31.
Big deal
83 percent of executives say their board made a strategic decision based on a forecast that was already known to be outdated. 40 percent report significant business consequences Board’s 2026 Planning Intelligence Report. The results are based on a survey of 300 CFOs, CIOs and COOs from companies with at least $100 million in annual revenue.
While 85% report increasing pressure to make faster decisions, only 27% report the ability to replan in real time, and three-quarters rely on data older than 30 days for about half or more of their planning decisions. Another finding is that more than half (59%) say their AI investments are exceeding the value they currently deliver, although 92% of this group still plan to increase spending next year. Meanwhile, 21% admit their companies present boards and investors with a rosier picture of AI performance than reality suggests.
Go deeper
“Can the AI spending boom pay off?” is the subject of an episode of Morgan Stanley Thoughts on the market Podcast. Big Tech is investing more than $1.4 trillion in AI, prompting investors to ask: Is it worth it? US internet analyst Brian Nowak discusses three business models that could achieve a 25 to 50% return on investment using generative AI-based technologies.
Overheard
“In my view, trust and alignment are quickly becoming the most important capabilities that differentiate agents and models. Any lab that doesn’t focus on alignment will fall behind.”
– Meta CEO Mark Zuckerberg wrote in an X post on Tuesday, regarding the debate over slowing progress in AI capabilities until convergence catches up.