The Federal Reserve raised its policy rate to a target range of 3.75 to 4.00 percent on September 16, its first increase since 2023 and the first under Chair Kevin Warsh, in the same month United States and Iranian forces have continued trading strikes on oil tankers near the Strait of Hormuz and West Texas Intermediate has held above 100 dollars a barrel. Either headline alone would ordinarily push the CBOE Volatility Index well above its long run average. Together they left it near 16.3, inside its typical range.
The TSX Composite tells the same story. The index closed at 36,834.25 on August 27 and fell as low as 35,491.27 on September 16, the day of the Fed decision, a decline of 3.6 percent spread across three weeks. By the close on September 17 it had recovered to 35,859.77, up 1.04 percent on the day, erasing most of the drop in a single session.
What the Research Says About This Kind of Calm
Daniel Kahneman and Amos Tversky, publishing in 1979, described how people revise their estimate of how likely an event is based on how available recent examples of it feel, not on the underlying base rate. Nine months of oil war headlines that repeatedly failed to trigger a broad equity selloff make the next headline feel less consequential, even when the underlying fact pattern, a Fed reversing course from cuts to a hike, is genuinely new. The result is not blind panic and it is not blind confidence either. It is a market that has learned, correctly on most days this year, that headlines from this specific conflict tend to fade. The risk sits in applying that same learned response to a signal that does not belong to the same category.
The TSX pulled back through the three weeks leading into the Fed decision and recovered nearly all of it the next session, a pattern that says as much about how investors are pricing risk as it does about the index itself.
The TSX Composite fell 3.6 percent from its August 27 high in the three weeks before the Federal Reserve raised rates on September 16, then recovered most of that move the next session. Source: TMX Group daily close data.
The Fed Hike Is Not Like the Other Headlines
Markets had priced most of 2026 for the Fed to hold or cut. Three officials dissented from the July hold, and Chair Warsh told reporters after the September meeting that inflation remains too high, according to CNBC coverage of the meeting. Canada faces a related problem from the other direction: the Bank of Canada held its rate at 2.25 percent on September 2, citing upside risk to inflation from tariffs and energy prices, and Statistics Canada reported headline inflation holding at 3.0 percent in August, with gasoline up 22.8 percent year over year. The rate gap between the two central banks widened once the Federal Reserve moved, and the Canadian dollar slipped to its weakest level in six weeks, trading near 1.3986 per US dollar by September 17, according to Trading Economics.
Where the Calm Could Break
Investors who watched the TSX recover twice this year within days of a geopolitical shock, once in the spring near an earlier oil spike and again this month, may reasonably expect the pattern to hold. Gold, which climbed to a record near 4,700 dollars an ounce in late August before easing to 4,382 dollars by September 17, tells a related story: the metal has behaved as a hedge against a familiar, specific risk rather than the broader one now on the table, a real change in the direction of interest rates after nearly three years of holds and cuts.