The Federal Reserve's September FOMC meeting delivered a 25 basis point rate hike that was simultaneously predictable and unexpected. It was predictable because futures markets had already priced in over a 92% probability of this move prior to the announcement. What made it surprising was the already elevated benchmark rate environment, which stood at 3.5%-3.75% before this decision, especially when compared to China's current 10-year treasury yield below 1.7% and one-year deposit rates around 1%.

This rate already places significant pressure on the U.S. government's debt servicing obligations. Washington's debt has recently surpassed $40 trillion, with annual interest payments reaching approximately $1.3 trillion, representing roughly 20% of federal revenues. The additional 25 basis point increase will push Treasury yields higher, raising borrowing costs for new government debt and increasing burdens on both corporations and households through higher mortgage rates. Since markets had fully digested this move in advance, the actual impact on asset prices has been relatively muted. U.S. equities rallied before the decision but pulled back modestly afterward, suggesting the effect on markets will be short-lived. Notably, the Fed Chair's post-meeting statement omitted his updated dot plot, providing no forward guidance on whether this is a one-off move or the start of a new tightening cycle.

Rate hikes are inherently negative for capital markets, but since this one was so heavily anticipated, it represents a case of "bad news priced in becomes good news," creating room for a rebound. Most Fed officials indicate the possibility of one more hike before year-end. The remaining schedule includes two more meetings, one in late October and another in mid-December. Whether further tightening occurs remains highly uncertain, hinging on upcoming employment and CPI data over the next month or two. The central bank must weigh whether additional hikes are necessary to contain inflation without derailing the economy.

The Fed Chair has maintained the central bank's institutional independence despite persistent pressure from the former administration to slash rates toward 1%. This decision reaffirms that monetary policy autonomy remains paramount, even under intense political pressure. Compared with the aggressive sequence of 11 consecutive hikes during 2022-2023, the economic backdrop has fundamentally changed. AI technology is booming while traditional sectors show weakness, and American households have endured roughly five years of high inflation. Since CPI is a year-over-year metric, cumulative price increases over eight years have pushed many goods and services up by over 30%.

My annual visits to the U.S. for the Berkshire Hathaway shareholder meeting, plus frequent trips to meet Wall Street institutions and participate in Sino-American financial forums, have given me direct insight into this inflation. Compared to 2019, prices at supermarkets, restaurants, and hotels have generally risen 30-50%. This extraordinarily prolonged inflationary episode has forced the Fed to keep raising rates despite risking recession. With the benchmark now at 3.75%-4% and potentially higher, each additional hike intensifies economic damage. Some economists warn this decision could be a policy error that pushes the U.S. into contraction. It certainly isn't a consensus move; rather, the Fed is choosing the lesser evil in the face of persistent inflation. Meanwhile, continued blocking of the Strait of Hormuz has pushed oil prices near $110 per barrel, maintaining upward pressure on prices. Rate hikes cannot address this supply-driven oil price shock; the true driver is reduced supply, not loose monetary policy.

This action primarily signals that inflation control remains the Fed's primary objective, though effectiveness remains to be seen. It's premature to declare this the start of a new tightening cycle. It could prove to be a single hike, or possibly one or two more, but it won't mirror the 2022-2023 series of 11 increases. That cycle started from near-zero rates and only reached about 5.5% after all those moves. Starting now from a 3.5% base means further increases would quickly push rates to dangerously high levels, causing disproportionate economic harm. Rather than initiating a sustained cycle, this is a data-dependent, step-by-step approach shaped by forthcoming inflation figures and employment data. Given that both the Bank of Japan and the European Central Bank have already hiked, this round of global tightening may be reaching its conclusion. The path forward depends on Middle East developments, whether the Strait of Hormuz reopens, oil price movements, and whether massive AI-driven capital expenditures that have driven up memory chip prices, iPhones, and computers show signs of slowing, which could ease demand-pull inflation.

This rate hike creates short-term headwinds for gold, with bullion prices already slipping. Combined with substantial gains in recent years and accumulated profit-taking, the near-term outlook for gold prices is likely unfavorable. However, the long-term bull case remains intact. De-dollarization is an accelerating trend, particularly as U.S. debt levels keep breaking records, eroding global confidence in the dollar and strengthening gold's long-term appreciation logic. When gold traded at $2,000 per ounce, I projected a near-term target of $5,000 and a long-term target of $10,000. This January, gold broke through $5,000 and reached $5,600/oz, achieving the first objective. Following the Middle East conflict and renewed inflation concerns, prices pulled back to $3,900/oz. I then suggested that prices below $4,000 represented a "golden pit" - an opportune entry point for accumulating gold assets. That strategy remains effective. Investors should consider modest allocations to gold-related assets, whether physical metal or ETFs, as a hedge against long-term currency depreciation. Medium-to-long-term gold positioning offers better odds than short-term trading.

The rate hike will also exert short-term pressure on U.S. equities, but it doesn't necessarily signal an imminent bubble burst. Numerous factors influence stock market performance, and interest rates are just one variable. Absent consecutive hikes, the market impact remains transitory. The key question revolves around whether the mega-cap tech companies can sustain their massive capital expenditure programs or whether slowing investment will compress profit growth and eventually trigger a bubble correction. Rather than predicting when a U.S. market downturn might occur, a better approach is to stay observant. I consistently advise checking overnight U.S. market performance each morning. If Wall Street holds up, all is well. However, if there's a sharp decline, especially a crash in the Nasdaq, that could signal the start of a bubble burst, warranting significant position reduction, particularly in tech stocks. Currently, U.S. markets remain robust, with major indices holding at elevated levels without signs of imminent collapse, supporting continued confidence.

For China's A-share market, this represents a "bad news exhausted" scenario that could support our ongoing long-term trajectory. Indeed, despite the rate hike expectation, tech stocks staged a significant rebound recently. The brief post-hike pullback hasn't developed into a major selloff because A-share tech valuations already corrected substantially through the third quarter, and the deleveraging process is nearing completion. In early July, when tech stocks were peaking, I cautioned against greed and recommended timely profit-taking to avoid the bubble deflation that followed. My three-step strategy was: first, resolutely reduce leverage; second, cut positions to half; third, maintain a barbell approach holding both tech and dividend stocks. That framework remains effective. With many tech leaders now down roughly 50% from their peaks, opportunities are emerging. Investors should resist panic and consider selectively accumulating oversold quality tech names alongside stable dividend payers, using the barbell approach to capture future gains.

The fourth quarter will likely bring a rebound in A-shares, encompassing both AI tech sector recovery and valuation normalization in traditional industries. After the third-quarter correction, many leading tech companies are showing real investment value. Sectors like chips, computing power, and optical communications - the first-half standouts - have corrected sharply, and crowded positioning has improved significantly. This environment favors bottom-fishing in unfairly sold-off companies and funds, with promising fourth-quarter performance likely. Chips and computing power should lead any rebound since these sectors report earnings first and attracted substantial capital inflows during the first half. However, after the severe third-quarter correction, investor confidence has been shaken and many are trapped at higher levels. A full-scale rally like the first half's broad chase is unlikely; instead, expect a choppy recovery rather than a one-way advance - a notable distinction from earlier this year. Other sectors including humanoid robots, commercial aerospace, solid-state batteries, and innovative drugs may also rotate into focus, with faster sector rotation rather than chips and computing power dominating exclusively. This represents another key difference between the fourth quarter and the first half.

The barbell strategy remains my recommended approach: half allocated to tech leaders or thematic funds/ETFs, half to dividend stocks. Many bank stocks recently hit record highs, and dividend names offer stable returns with attractive payout ratios, serving as effective risk hedges. This "one hand in tech, one hand in dividends" structure is both practical and easy to implement. Regarding position sizing, during the recent sustained correction I advised maintaining roughly 50% exposure - flexible enough to attack or defend. With signs of a rebound emerging, modest adjustments are appropriate. Consider building positions in undervalued quality stocks or funds in batches. However, I strongly advise against going all-in or using leverage. A single significant market swing could wipe out leveraged positions entirely.