U.S. stocks climbed Monday as investors continued to absorb the Federal Reserve’s latest interest-rate increase, with falling crude prices and a retreat in Treasury yields providing relief after several sessions of pressure from inflation and higher borrowing costs. The S&P 500 rose 1.3%, the Nasdaq Composite gained 2% and the Dow Jones Industrial Average advanced 0.6%, according to Associated Press market data. The rebound brought the major indexes closer to recent highs even as investors remained focused on how far the Fed’s renewed tightening cycle could extend.

The market moves followed the Federal Open Market Committee’s September 16 decision to raise the federal-funds target range by 25 basis points to 3.75% to 4.00%. The vote was unanimous. In its statement, the Fed said economic activity was expanding at a solid pace, domestic spending remained resilient and inflation was still elevated. The increase marked the central bank’s first rate hike in more than three years, reversing the direction of policy after an extended period in which investors had grown accustomed to stable or lower short-term rates.

The immediate market reaction last week was more difficult. Stocks fell after the decision as Treasury yields pushed higher and investors considered the possibility that the September increase could be the beginning rather than the end of renewed tightening. The benchmark 10-year Treasury yield moved around the closely watched 5% level, increasing the discount rate applied to stocks and raising financing costs across the economy. Higher Treasury yields can make government bonds more competitive with equities while also affecting corporate debt, mortgages and other forms of credit.

Monday provided a reminder that the Fed is only one force moving financial markets. The 10-year Treasury yield eased to roughly 4.95% from about 5.01%, while Brent crude fell 4.3% to $99.38 a barrel. The decline in oil reduced some of the market’s immediate concern that energy costs would add another wave of inflation pressure. That combination — cheaper oil and lower bond yields — was particularly supportive for growth and technology shares, which tend to be sensitive to changes in long-term interest rates.

The underlying inflation picture explains why the Fed moved despite the risks created by higher borrowing costs. The Labor Department reported that the Consumer Price Index rose 0.4% in August and was 3.4% higher than a year earlier. Gasoline prices increased 3.9% during the month, accounting for more than one-third of the overall monthly CPI increase, while the broader energy index rose 2.1%. Prices excluding food and energy increased 0.3% for the month and 2.4% from a year earlier.

Those figures leave policymakers with a complicated mix of pressures. Interest-rate increases cannot directly produce more oil or eliminate supply disruptions, but the Fed can use higher borrowing costs to limit demand and reduce the risk that elevated inflation spreads more broadly through wages, services and consumer expectations. At the same time, aggressive tightening could eventually weaken investment, hiring and household spending if financing costs rise faster than companies and consumers can absorb.

The labor market has so far given policymakers room to focus on inflation. U.S. employers added 162,000 jobs in August, while the unemployment rate held at 4.1%, according to the Bureau of Labor Statistics. Average hourly earnings increased 0.3% during the month and 3.1% over the previous year. The combination of continued job creation and above-target inflation reduces the immediate pressure on the Fed to support the economy with cheaper money.

The Fed’s own projections reinforced the prospect that monetary policy could stay restrictive. The median projection released after the September meeting put the federal-funds rate at 4.1% at the end of 2026, compared with 3.8% in the June projections. Policymakers also projected median 2026 PCE inflation of 3.7%, above the central bank’s 2% longer-run objective. The projections are not commitments, but they show that officials collectively expect a higher rate path than they did earlier in the year.

For the housing market, the effects are already tangible. Freddie Mac said the average 30-year fixed mortgage rate reached 6.95% in the week ended September 17, up from 6.76% the previous week. Mortgage rates are not set directly by the federal-funds rate, but they are heavily influenced by Treasury yields, inflation expectations and conditions in mortgage-backed securities markets. Elevated rates increase monthly payments for new buyers and can discourage existing homeowners with cheaper mortgages from selling and taking out new loans.

Businesses face a similar repricing. Companies refinancing floating-rate debt or issuing new bonds may encounter higher interest expenses, while borrowers dependent on bank credit can face tighter loan terms. Highly leveraged businesses are generally more exposed than companies with large cash balances or long-dated fixed-rate debt. For corporate investment, the hurdle is also rising: projects, acquisitions and real-estate developments must generate stronger expected returns to justify financing when the cost of capital increases.

Equity investors are therefore watching both the level of rates and the speed at which conditions change. Technology and other growth-oriented companies can be particularly sensitive because a larger share of their valuation may depend on earnings expected far into the future. When bond yields rise, those future cash flows are discounted more heavily. Monday’s technology-led rally showed the reverse dynamic: easing yields can quickly restore demand for growth shares even when the Fed itself has not changed policy.

The next phase of the market adjustment will depend heavily on inflation, energy prices and incoming economic data. A sustained decline in oil could reduce headline inflation pressure and ease Treasury yields, potentially limiting the need for additional tightening. Renewed increases in energy prices or evidence that inflation is broadening could produce the opposite result, strengthening expectations for another Fed move and keeping financing conditions restrictive.

For now, Monday’s rebound suggests investors are distinguishing between a higher policy rate and an automatically weaker stock market. The Fed has made money more expensive, but movements in Treasury yields, oil, corporate earnings and economic growth will determine how that decision ultimately reaches Wall Street, Main Street and the broader U.S. business environment. The September hike has changed the rate backdrop; markets are now trying to determine whether it represents a limited adjustment or the beginning of a longer tightening phase.