Global markets rally after Fed hikes rates to 3.75-4% range

Fed raises rates to 3.75-4%

The US Federal Reserve on Wednesday raised its benchmark rate by 25 basis points to the 3.75-4% range, citing strong productivity growth while noting that employment gains have kept pace with labor force expansion. Fed Chair Kevin Warsh said the hike represented a necessary step toward securing price stability, adding that inflation has remained elevated without tangible progress in underlying trends during recent months.

The central bank upwardly revised its inflation forecast for this year from 3.6% to 3.7%, while maintaining its 2027 estimate at 2.3% and setting its 2029 expectation at 2%, according to the latest economic projections. The Fed's dot plot revealed that 16 out of 18 officials anticipate at least one additional rate hike this year, with the unanimous decision marking the first increase since July 2023.

Trump urges rates cut to 1%

US President Donald Trump called for interest rates to be lowered to 1% or below, diverging sharply from the central bank's tightening trajectory. The New York Stock Exchange closed lower Wednesday as bank stocks declined, with JPMorgan Chase shares falling 1%, Bank of America losing 2.7%, Wells Fargo dropping 3%, and Goldman Sachs contracting 4%.

Expectations of further tightening initially dampened risk appetite, though Warsh's emphasis on stability prompted a rebound Thursday, with the Dollar Index rising above 100 for the first time since August 4 before trading at 100.3. The US 30-year fixed mortgage rate rose to 6.97% last week, its highest since May 2025, while retail sales climbed 1.2% month-on-month and import prices rose 0.7% in August.

Commodity markets react

Trump claimed Tehran had directly reached out to negotiate an end to the war, while US officials held secret talks with Iranian-backed Houthi militias in Oman and Riyadh announced additional crude shipments via the sultanate. November-delivery Brent crude oil fell 2.7% on Wednesday to $105.8 a barrel before trading flat on Thursday, while gold climbed 0.5% to $4,287 per ounce as the US 10-Year Treasury yield hovered at 5.01%.

European and Asian markets mixed

European equity markets advanced on Wednesday driven by mining stocks and easing oil prices, with the UK's FTSE 100 rising 0.28%, Germany's DAX 40 growing 0.53%, and France's CAC 40 adding 0.62%. The UK's annual inflation reached a five-month high of 3.1% on transport and gas costs, with expectations of exceeding 4% in coming months as markets awaited the Bank of England's rate decision on Thursday.

Asian markets traded mixed near Thursday's close, with South Korea's Kospi and Japan's Nikkei 225 each rising 0.9% while Hong Kong's Hang Seng fell 0.7% and China's Shanghai Composite contracted 0.4%. The Bank of Japan is expected to hike its policy rate by 25 basis points from the current 1% to reach its highest level in 31 years, driven by inflationary concerns and yen depreciation.