Markets on edge as US Fed meets to tackle high inflation

Oil prices jumped, US bond yields rallied and equities retreated Tuesday as the Federal Reserve looked set to raise interest rates, with high inflation and AI concerns dominating market sentiment.

Brent crude futures again pushed towards US$110 a barrel, while average diesel prices in the US struck a record high of just under US$6.27 a gallon, heaping pressure on President Donald Trump ahead of midterm congressional elections.

“There’s no let-up in the volatility rippling through financial markets, with energy prices staying painfully elevated and worries swirling about the knock-on effect for inflation and interest rates,” said Susannah Streeter, chief investment strategist at Wealth Club.

The yield on the 10-year US Treasury note hit 5.03%, a level last seen in 2007 before the global financial crisis, as investors price in a likely hike in US interest rates.

The US Federal Reserve began a rate-setting meeting Tuesday with markets expecting policymakers to pull the trigger on a hike to tackle persistently high consumer prices in the world’s biggest economy.

Market expectations for a 25-basis-point rate increase have risen sharply after official data published last week showed US annual inflation remaining far above the Fed’s target.

With the crisis in the Middle East showing little sign of abating and Yemen’s Houthi rebels taking control of a crucial outlet for shipping, crude has spiked this month to more than US$100 a barrel.

The surge in energy costs has ramped up pressure on central banks to raise borrowing costs.

The European Central Bank last week lifted interest rates in the eurozone.

The Bank of England is forecast to maintain its benchmark rate on Thursday as the UK economy struggles for growth.

Major Wall Street indices spent the session in the red following losses in Europe and Asia. The broad-based S&P 500 finished down 0.5%.

“The heavier cost of capital, rising fuel charges and worries about the potentially adverse societal impact of AI’s rapid adoption have pushed stocks to their weakest prices in roughly six weeks ahead of tomorrow’s Fed decision,” said a note from Jose Torres of Interactive Brokers.

If Fed policymakers vote to hike on Wednesday, it will be the first time the Fed has raised rates since 2023, when the central bank was still battling post-pandemic inflation.

Such a move will be sure to anger Trump, who has launched an unprecedented campaign to pressure the independent central bank to lower rates in order to spur economic activity.

Key figures at around 2030 GMT

Brent North Sea Crude: UP 2.9% at US$108.75 per barrel

West Texas Intermediate: UP 4.4% at US$105.83 per barrel

New York – Dow: DOWN 0.6% at 52,093.11 (close)

New York – S&P 500: DOWN 0.5% at 7,585.73 (close)

New York – Nasdaq Composite: DOWN 0.8% at 25,981.57 (close)

London – FTSE 100: DOWN 0.4% at 10,658.13 (close)

Paris – CAC 40: DOWN 0.3% at 8,090.28 (close)

Frankfurt – DAX: DOWN 0.2% at 25,402.28 (close)

Tokyo – Nikkei 225: FLAT at 63,484.10 (close)

Hong Kong – Hang Seng Index: DOWN 1.0% at 24,667.24 (close)

Shanghai – Composite: DOWN 0.5% at 3,864.28 (close)

Euro/dollar: DOWN at US$1.1542 from US$1.1549 on Monday

Pound/dollar: DOWN at US$1.3477 from US$1.3499

Euro/pound: UP at 85.64 pence from 85.54 pence

Dollar/yen: UP at 155.09 yen from 154.35 yen

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