Markets Slide as Fed Poised for First Rate Hike Since 2023; Inflation and AI Fears Weigh

Global markets retreated Tuesday as the Federal Reserve opened a two-day policy meeting widely expected to deliver its first interest rate increase in three years, with inflation refusing to ease and energy prices climbing on geopolitical turmoil.

The S&P 500 fell 0.5 percent to 7,585, the Dow Jones Industrial Average lost 0.6 percent to 52,093, and the Nasdaq Composite dropped 0.8 percent to 25,981, according to RTHK report citing agencies. Canada’s S&P/TSX Composite Index slid 0.34 percent to 35,582.07, with only the energy sector posting gains, as reported by RTTNews via Nasdaq.

**Bond yields surge, oil nears $110**

The yield on the 10-year U.S. Treasury note hit 5.03 percent, a level last seen in 2007 before the global financial crisis, two separate sources reported. The two-year yield, more sensitive to Fed policy, reached its highest since July 2024, according to Decrypt.

Brent crude futures pushed toward $110 a barrel as the conflict in the Middle East showed no signs of easing. Average diesel prices in the United States struck a record high of just under $6.27 a gallon, RTHK reported, citing agencies. The Strait of Hormuz remains closed, and Saudi Arabia closed its East-West pipeline for repairs after drone attacks by Houthi militants, according to RTTNews. The Iran-aligned Houthis have also advanced along Yemen’s Red Sea coast, threatening the Bab el-Mandeb Strait.

"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," Susannah Streeter, chief investment strategist at Wealth Club, told RTHK.

**Expected rate hike: first since 2023**

The Federal Open Market Committee concludes its meeting Wednesday. CME’s FedWatch tool puts the odds of a 25-basis-point hike at 94.5 percent, up from under 50 percent a month ago, Decrypt reported. A Wall Street Journal survey published this week found nearly every major bank expects a hike, with most — including Barclays, Citigroup, JPMorgan, Morgan Stanley and UBS — forecasting 50 basis points of total tightening by year-end. Bank of America, Deutsche Bank and RBC are more hawkish, calling for 75 basis points.

A hike on Wednesday would be the first since 2023, when the central bank was still battling post-pandemic inflation, according to multiple sources. The Federal Reserve held rates at 3.50-3.75 percent in July, but that decision passed by a 9-3 vote, with three policymakers already pushing for a hike, Decrypt noted.

The case for tightening rests on inflation that remains above the Fed’s 2 percent target. Headline CPI ran at 3.4 percent annually in August, with core inflation at 2.5 percent, Decrypt reported, citing official data from last week.

**Political clash with Trump**

The move sets up a political confrontation with President Donald Trump, who handpicked Fed Chair Kevin Warsh in January hoping for lower rates. Trump, Vice President JD Vance, and Treasury Secretary Scott Bessent have all publicly pushed for cuts in the past two weeks, with Trump going as far as threatening to halt trade with surplus countries if rates do not come down, according to Decrypt. The hike arrives two months before the November midterm elections.

The Federal Reserve is widely expected to lift its short-term rate Wednesday for the first time in three years to fight stubbornly high inflation, a move that would put the central bank at odds with President Trump’s support for a cut, PBS summarized.

Warsh has said the president has had no influence on Fed decisions, Decrypt reported.

**AI concerns and sector rotation**

Beyond inflation and oil, investor anxiety about the artificial intelligence sector added to the risk-off mood. “Given rising prices for fuel, especially diesel, given the near-certain outlook for rising rates beginning tomorrow, and given the concerns over the potential slowdown in the AI ecosphere, why step into the market aggressively until some of this clears up?” Peter Tuz, president of Chase Investment Counsel in Charlottesville, Virginia, told RTHK.

Nearly every sector except energy declined. The energy sector benefited from expanding hostilities in the Middle East, including new attacks on Saudi Arabia’s energy infrastructure, RTHK reported.

**Gold and bitcoin under pressure**

Gold prices are already under pressure, according to a report from Bangkok Post. Kritcharat Hiranyasiri, chairman of MTS Gold Group, was quoted saying markets are pricing in the first rate hike under Warsh this week, with another possible in December. He said gold prices could fall by another $100 to as low as $4,200 at most before picking up. The local gold bar in Thailand is expected to decrease by 1,000 baht per baht-weight.

Bitcoin traded around $75,700 Tuesday, down about 3.2 percent on the day, Decrypt reported, after the Clarity Act, crypto’s long-awaited market structure bill, failed its Senate cloture vote. Bitcoin is now well off its September peak near $82,000. Higher-beta altcoins are expected to see sharper swings.

**Asian markets and Canadian trade war**

Asian stocks were poised to edge higher Wednesday, even as surging oil prices and rising bond yields keep traders on edge ahead of the Fed decision, Bloomberg reported in a summary.

In Canada, the benchmark TSX fell while the energy sector gained 3.12 percent. Canada is battling high tariffs imposed by Trump on several Canadian exports, with an outright ban on certain goods taking effect September 29. Prime Minister Mark Carney, speaking at the Canada Investment Summit in Toronto, said Canada will emerge as a more resilient and independent economy through the trade war and allowed businesses to immediately write off the cost of new capital investments for tax purposes, RTTNews reported.

**What to watch**

The Fed’s statement and updated dot plot are due at 2 p.m. ET Wednesday, followed by Warsh’s press conference at 2:30 p.m. ET. Traders will watch for whether officials pencil in just one more hike this year or something closer to the two additional moves hawkish banks are calling for, Decrypt noted. The European Central Bank lifted rates last week, while the Bank of England is forecast to hold its benchmark on Thursday.