The Rate Cuts Are Over — What the Return of Rate Rises Means for Your Money

September 2026

By Will Glyn

For the best part of two years, the story told to anyone with savings, a mortgage or a portfolio was the same: interest rates were on their way down. Inflation had been beaten, the cutting had started, and the only question was how fast. Plenty of financial plans — and plenty of mortgages — were built on that story.

That story ended this month. On 10th September the European Central Bank raised all three of its key rates by a quarter of a point. Six days later the US Federal Reserve did the same, lifting its target range to 3.75–4% — the first increase in more than three years, and a unanimous 12–0 vote. The Bank of England held at 3.75% on 17th September, but three of its nine members voted for a rise, and the Governor, Andrew Bailey, said in the minutes that if the conflict in the Middle East “persists for an extended period”, policy “may have to tighten”.

Two of the three central banks that matter most to my clients raising rates within a week of each other, and the third openly preparing the ground, is a change of direction, not a blip. So this piece is about what a hiking cycle — as opposed to the high bond yields I wrote about last month — does to your money, and what I’d do about it.

Why raise rates against an oil shock?

The obvious objection is that an interest rate can’t reopen the Strait of Hormuz, and the inflation being fought is overwhelmingly an energy story. US consumer prices rose 3.4% in the year to August according to the official US figures, but strip out food and energy and the figure is 2.4%; petrol was up 27.4% and accounted for over a third of August’s monthly rise on its own. The euro area reads almost identically — 3.2% headline, 2.4% excluding energy, food, alcohol and tobacco, per Eurostat — and the UK is 3.1% with motor fuels up 23% on the year, according to the ONS. Strip out energy and food and all three economies are within little more than half a point of their 2% targets.

So why hike? Kevin Warsh, the Fed chair, gave the clearest answer I’ve heard at his press conference: “We cannot affect any individual price, whether it be oil prices, whether it be foodstuffs at the grocery store. But what we can do, and will do, is ensure that any change in relative prices don’t broaden out, don’t have second- and third-order effects in the economy.” The ECB put it more bluntly, saying inflation “is set to remain well above target for an extended period”. They aren’t trying to bring oil down. They’re trying to stop this year’s oil shock turning into higher wage demands, higher prices for everything else, and a repeat of 2022.

The detail that matters for planning is in the Fed’s own projections. The median forecast now has inflation falling back to 2.3% next year — and the policy rate still at 4.1% at the end of both 2026 and 2027. In plain English: one more rise pencilled in for this year, then no cuts for a long time, even after the oil effect fades. Markets are pricing roughly a three-in-four chance of that next rise landing at the October meeting, according to Fortune’s reading of the CME FedWatch tool.

Cash: better paid, but still not a strategy

The good news first. A three-month US Treasury bill yielded 4.24% at the end of last week according to the US Treasury’s own figures, comfortably above 3.4% inflation, and UK Bank Rate at 3.75% sits about two-thirds of a point above UK inflation. Money sitting in the right place is keeping its purchasing power and then some.

Now the catch, and it’s a big one for anyone whose savings are in euros. The ECB’s deposit rate is 2.50% after this month’s rise. Euro area inflation is 3.2%. Even after the hike, a euro deposit earning the ECB’s rate is losing purchasing power at around 0.7% a year — and the ECB’s own projections have inflation above 2% out to 2028. A rate rise makes the headline number on your savings account look better. It does not, on its own, make the money grow.

An emergency fund in cash is essential, and it should be sized for your life, not for the interest rate. But money beyond that, parked because “rates are going up”, is a decision to accept a return that is at best slightly positive and at worst still negative in real terms, in exchange for a number that doesn’t move. That trade has a cost, and it compounds.

Shares: what usually happens after the first rise

Here’s the stat that surprises most people. The S&P 500 closed last Friday within 0.7% of its all-time high, according to Associated Press reporting. Two rate rises, a $100 oil price and ten-year Treasury yields above 5%, and the biggest stock market in the world is shrugging.

History says that reaction is normal — for a while. Charles Schwab’s study of the 18 US tightening cycles since 1946 found the S&P 500 gained an average of 18% in the year before the first rate rise, then suffered an average maximum drawdown of 12% within six months and 14% within a year, with the worst of the fall tending to come early. LPL Research, looking at the six cycles since 1994, found the index typically negative for the first four months after the first hike and then up an average of 6.7% (median 10.7%) twelve months on. The one cycle in that set that ended badly was 2022, when the index was still lower a year after the first hike and suffered a 25% peak-to-trough fall along the way — the cycle where inflation was running away from the central bank rather than being contained by it.

The read-across is this. A wobble in the months after the first rise is the pattern, not the exception, and a plan that can’t survive a 10–15% drawdown without you doing something rash wasn’t much of a plan. What turns a wobble into a bear market is inflation slipping the leash — which is precisely what the ECB and the Fed are hiking to prevent. And given how much of the US market now rests on a handful of heavy AI spenders, remember that higher rates bite hardest on companies whose profits sit furthest in the future.

Bonds: the short version

I covered bonds at length last month, so I’ll keep this brief. The ten-year US Treasury yield closed at 5.17% last Friday, up from 4.79% at the start of September, and the thirty-year at 5.49% — Deutsche Bank’s Jim Reid described last Wednesday’s sell-off as taking the ten-year to a post-2007 high. Existing long-dated bond holdings have had another poor month, for the reason I explained then: price and yield sit on opposite ends of a seesaw, and the longer the bond, the harder the seesaw swings.

The flip side is unchanged too: a high-quality government bond bought today pays a contractual return above 5% in dollars for a decade or more. If you own bonds through a fund — and most people do — the figure to look up is its duration, because that one number tells you how much of the next move you’ll feel. A hiking cycle rewards owning the shorter end while it lasts.

Borrowing: which central bank sets your number?

This is where living an international life stops being a footnote and starts changing the answer. Most people have their savings, their mortgage and their income priced by more than one central bank, and this month those banks did not all move together. A variable-rate mortgage anywhere in the euro area moves with the ECB, which has just raised. A UK deal coming off its fixed rate reprices off where the market expects Bank Rate to go next, and with three of the Bank of England’s policymakers already voting for a rise, that direction is not down. Savings held in dollars now earn Fed rates well over a point above the ECB’s.

I see plenty of clients with a euro mortgage, a dollar salary and sterling savings who, until this month, could treat the three as one “rates” story. They can’t any more. If you have borrowing due to reprice in the next twelve months, know exactly what it is linked to and what it will cost at a rate a point higher than today. We aren’t mortgage advisers ourselves, but we work with an FCA-regulated specialist broker for exactly this conversation, and the earlier it happens the more options you have.

What I’d actually do

None of this calls for dramatic action — most of the damage I see in a hiking cycle comes from people reacting to it, not from the rates themselves. In order of usefulness:

• Work out your real return on cash, by currency — the rate on the account minus inflation where the money is held. If it’s negative, that money needs a job.
• Don’t let the first rise shake you out of shares — the early wobble is the historical pattern, and the recovery that follows it is too.
• Check the duration of what you own — your bond fund’s factsheet tells you in one number how exposed you are to the next move.
• Find out which central bank prices your debt — and stress-test any borrowing that reprices in the next year at a rate a point higher.
• Resist timing the October meeting — the Fed’s own chair won’t predict it; you don’t need to either.

How We Can Help

At Proctor Wealth Associates we are independent advisers working with clients all over the world, and a change in the direction of interest rates touches every part of the plan at once — cash, investments, borrowing and the currencies they sit in. We can help you:

• See your whole position in one place — every account, fund and loan, and which central bank’s decisions each one now answers to.
• Put idle cash to work — keeping a well-sized emergency fund and giving the rest a real return, in the right currency.
• Stress-test your portfolio for a hiking cycle — checking how much of it rests on long-dated bonds or richly valued growth shares before the next rise, not after.
• Prepare for a mortgage repricing — through our introduction to an FCA-regulated specialist broker, with time to compare options rather than accept whatever the lender offers.
• Keep the plan under review — so the next decision from the Fed, the ECB or the Bank of England is something you’ve already allowed for.

If you’d like a second opinion on how the return of rate rises changes your own numbers, you can book a call with me and we’ll go through it together.

Will is an Independent Financial Adviser with over a decade of experience helping expats make the most of their international status.