Weekly Buzz: The Fed raised rates for the first time since 2023

For the first time in three years, the US Federal Reserve (the Fed) has raised interest rates. On Wednesday, it lifted its benchmark rate by 25 basis points to a target range of 3.75% to 4% by a unanimous vote.

The decision came after America's read on inflation last week showed price pressures remain sticky, fuelled in part by surging oil prices from the conflict in Iran. The US consumer price index (CPI) rose 3.4% in August compared with a year ago, while core inflation – which strips out more volatile food and energy prices – came in at 2.4%.

The Fed has two objectives: to keep prices stable and maximise employment, and it tackles both mainly through interest rates. Higher rates make borrowing more expensive, which can cool inflation but dampen hiring. The labour market did give policymakers some breathing room: the US economy added 162,000 jobs in August, well above the 53,000 expected and the strongest month since March.

Fed Chair Kevin Warsh struck a firm tone, saying inflation has been too high, for too long. Updated projections showed a majority of Fed officials expect at least one more hike before the end of the year – signalling that this may not be a one-and-done move. Where rates go from here is still uncertain, but a portfolio that's diversified across asset classes will be better positioned regardless.

(For more on bonds and the interest rate environment, read our latest CIO Insights.)

Investor's Corner: How to find AI-proof businesses

Not all AI winners will be tech's biggest companies and biggest spenders. Some won't be tech firms at all: they'll be the businesses that are hard for AI to disrupt, yet have plenty to gain from smarter software, automation, and decision-making.

What's going on here?

Some products and services depend on physical assets or human relationships – things AI can't cheaply reproduce. AI can do many things, but it can't generate a hotel room. At the same time, many of these businesses spend heavily on pricing, forecasting, and customer service; the kind of information-heavy work AI can do faster and cheaper.

These businesses don't need to spend billions building data centres, either. They can just buy the technology as it improves, and keep the productivity gains.

Goldman Sachs has noticed the same shift. Investors have increasingly favoured asset-heavy companies whose physical infrastructure is harder to replicate and less exposed to technological obsolescence. Goldman's strategists estimate asset-heavy stocks have outperformed capital-light ones by roughly a third since the start of 2025.

Owning physical assets helps, but owning the customer relationship matters just as much. Earlier this year, big hotel groups gained ground while online booking platforms sold off.

The underlying travel demand hadn't changed. The difference was where each business sat between the traveller and the room. AI probably won't stop people needing hotels, but it could reshape how they search for them. That's a bigger risk for the intermediaries than for the companies with the rooms and the loyalty programmes.

What's the takeaway here?

Investors are looking at which businesses own assets or relationships that are costly to replicate, and can use AI to run leaner without depending on it for survival. That points to sectors like real estate, travel and leisure, and infrastructure, not just the tech names that dominate AI headlines. For long-term investors, the opportunity isn't in picking individual winners, it's in getting targeted exposure to the sectors where these shifts are playing out. 

(For simple, targeted access to the sectors that matter to you, see Flexible Portfolios.)

Past performance is not an indicator of future returns. These articles were written in collaboration with Finimize.