Rate Hike: An increase in the central bank’s benchmark short-term interest rate, the Fed’s primary tool for cooling demand and containing inflation by raising the cost of borrowing throughout the economy. Wednesday’s quarter-point move to a 3.75-4% target range was the first hike in more than three years, and its significance lies less in the 25 basis points than in the reversal of direction it represents. For most of the past two years markets debated when the Fed would cut; the question is now how many more times it will raise, with the dot plot pointing to one or two additional increases before year-end. The mechanism runs through every corner of the market: higher policy rates lift the whole yield curve’s anchor (the 10-year pierced 5% for the first time since 2007), raise the discount rate on future earnings (compressing long-duration growth valuations most), increase borrowing costs that slow credit-fueled expansion, and strengthen the dollar as higher yields draw capital. What makes this hike unusual is its cause. The Fed is not tightening because the economy is overheating but because an external supply shock—the Iran war’s effect on oil, which one CBO estimate blames for nearly half of current inflation—has pushed prices up in a way rate policy cannot directly fix. Raising rates cannot produce a barrel of oil; it can only suppress demand broadly enough to offset the energy shock, risking slower growth even as it fights prices. That is the box Warsh is in, and why the reaction was so conflicted: a hike into supply-driven inflation is both necessary for credibility and blunt as a remedy. For investors, the regime shift matters more than the single move. A tightening Fed with oil above $100 and yields above 5% inverts the playbook that governed the prior cycle—cash and short-duration assets earn more, leverage costs more, and the assumption that the Fed will rescue falling markets no longer holds while inflation is the binding constraint.