Tomorrow evening at 8 PM German time, Fed Chair Kevin Warsh will step in front of the cameras and announce a decision the entire financial world has been waiting for: Will the US central bank raise interest rates for the first time since July 2023 — or will everything stay the same?
The tension is enormous. After Warsh's Jackson Hole speech at the end of August, markets completely flipped their bets. Before, hardly anyone expected a rate hike. Now the majority of market participants are convinced: a 0.25 percentage point increase to 3.75–4.0 percent is coming.
The Story Behind It
Why does this matter so much? Because higher interest rates change the entire game. When rates rise, money becomes more expensive — for companies that want to invest, for people who want to buy a house, for everyone who relies on credit. At the same time, government bonds become more attractive: those who want to park their money safely suddenly get more yield — and no longer have to take on risk.
This means pressure on tech stocks. Tesla, NVIDIA, Apple — all companies that have benefited from cheap money in recent years. If rates rise, capital flows out of these growth stocks and migrates to safer havens: bonds, gold, defensive sectors like healthcare or consumer staples.
What This Means for You
If you have an ETF portfolio — like many beginners — your portfolio will react tomorrow evening. If the Fed keeps rates stable, the market could breathe a sigh of relief and continue rising. If it raises rates, expect a pullback of two to five percent in the coming days.
That sounds dramatic, but it's normal. Paper losses are not real losses — as long as you don't sell. Those who panic-sell now are making exactly the mistake I made myself in 2000 with the Deutsche Telekom stock: I sold out of fear and caught the bottom.
How Pros Are Reacting
Hedge funds have already built their positions. Some are betting on rising rates and have massively shifted into defensive sectors — out of tech, into energy, banks, and utilities. Others are betting the Fed will still hesitate and have increased their tech positions. Tiger Global, for example, bought over one million NVIDIA shares worth 220 million dollars just days ago.
Both sides can't be right. Tomorrow evening we'll know who placed the right bet — and who loses millions.
First Steps for Beginners
If you're just starting to invest, this is a perfect lesson: Fed interest rate decisions move markets. They are more important than individual quarterly earnings from companies, more important than political tweets. The Fed controls the price of money — and thus the foundation of all stock valuations.
My advice: Watch tomorrow's decision, but don't make snap judgments. No matter how the market reacts — your long-term plan matters more than a single day.
Note: This article is for informational purposes only and does not constitute investment advice. Past performance is not an indicator of future results.