Asian Stocks Reel as Fed Rate Decision Looms Amid Inflation Fears

Hong Kong stocks struggled to keep pace with the rest of Asia as investors await the Federal Reserve's interest rate decision, which is expected to hike borrowing costs for the first time since 2023.

The market's uncertainty comes amidst rising inflation concerns, with the Middle East crisis pushing crude prices above US$100 a barrel. This has led policymakers to tighten monetary policy, dealing a blow to global equities that had reached record highs in the first half of the year.

Fed boss Kevin Warsh's hawkish speech at Jackson Hole last month solidified expectations for an interest rate hike, and data showing strong jobs creation and stubbornly high inflation have cemented traders' bets. With a more than 90 percent chance that board members will choose to tighten monetary policy, investors are bracing themselves for the impact.

The Bank of Japan is also expected to hike rates due to rising inflation and the need to maintain support for the yen, which has picked up against the dollar this month. Invesco's David Chao noted that currency markets are pricing in a consensus that US inflation will return to 2 percent, but it's possible that US inflation instead settles closer to 3 percent.