As expected, the Federal Reserve raised interest rates by 25 basis points this week, bringing the federal funds rate to 3.75%–4.00%.

But the rate increase itself wasn’t the most important part of the meeting. What mattered much more was what the Fed said about what comes next.

There were a few different ways the Fed could have handled the meeting. They could have raised rates and then softened the message by suggesting this was largely a one-and-done move. They could have left rates unchanged, although very few people expected that. Or they could raise rates and signal that additional increases may still be necessary.

We got the third outcome.

Going into the meeting, my view was that the Fed would probably raise rates but then talk down the likelihood of further increases. I was comfortable with this outcome because it would have removed some of the uncertainty that had been hanging over markets.

Instead, the message was that the inflation fight is not finished.

Markets started the day strong but turned lower once Warsh began speaking, as investors adjusted to the possibility that rates could stay higher for longer. Stocks bounced back sharply the following day, only to drift lower again Friday as Treasury yields moved higher. Another roller-coaster week for the markets.

While the “will he or won’t he” rate-hike drama was playing out, I wasn’t paying too much attention. I still think most of it falls into the “noise” category. The quarter-point increase itself isn’t what I think matters most for investors.

Why Interest Rates Matter Less Than They Used To

Historically, the U.S. economy was extremely sensitive to interest rates. Housing, automobiles, manufacturing and other large parts of the economy depended heavily on borrowed money. When borrowing costs rose, demand slowed quickly and asset prices usually felt the impact.

The economy and the stock market look very different today.

Technology now represents a much larger portion of the market, and much of the current investment cycle is being driven by artificial intelligence, data centres, semiconductors and the infrastructure required to support them.

These businesses are certainly not immune to interest rates, but many of the largest companies leading this investment cycle have enormous cash flows and much less dependence on traditional borrowing than the companies that drove previous economic cycles.

That means a 25-basis-point change in interest rates matter less to the dominant parts of today's stock market than it would have twenty or thirty years ago.

This doesn't mean interest rates no longer matter. Higher rates still increase borrowing costs, affect valuations, influence currencies and compete with stocks by making bonds and cash more attractive.

But the sensitivity may be different.

What I'm Watching More Closely Right Now

The more immediate concern, in my view, continues to be energy and inflation.

As I've mentioned in recent letters, I'm less focused on the headline price of crude oil than I am on whether crude can actually reach refineries and whether enough finished products, particularly diesel and gasoline, can reach the economy.

That distinction is becoming increasingly important.

Saudi Aramco has temporarily halted October crude deliveries to some European refiners following damage to its East-West pipeline. The company is reportedly working to restore capacity, and alternative supplies are being arranged, so at this stage I don't view it as a permanent disruption.

But diesel prices are already elevated, with U.S. diesel recently above $6 per gallon amid tight refining capacity and disruptions to global fuel supplies.

That matters because diesel touches almost everything in the economy: trucking, agriculture, construction, shipping and ultimately the price of goods.

If these disruptions prove temporary, the inflation impact should fade.

If they persist, inflation could remain stickier than expected, which would give the Fed another reason to keep rates higher.

And that is where the tug-of-war continues.

The Bottom Line

I don't think investors should ignore interest rates. But I also don't think every quarter-point increase automatically means stocks have to fall.

The composition of the economy has changed.

The companies driving much of today's market have stronger balance sheets, enormous cash flows and exposure to one of the largest capital-investment cycles we've seen in decades.

The Fed will continue to matter, particularly if inflation forces rates materially higher. But I increasingly think investors need to look beyond the old playbook where "rates up" automatically meant "stocks down."

For now, I'm watching three things closely: inflation, energy and the continuing AI investment cycle.

Mark Ting, CFP®, CIM® is a registered Portfolio Manager at Foundation Wealth Partners. Foundation Wealth Partners LP (“FWP”) is registered as a Portfolio Manager and Exempt Market Dealer in all Canadian provinces and the Yukon territory.