Fed Hike Puts Pressure on Global Markets Amid Inflation Fears

The US Federal Reserve raised its federal funds target by 25 basis points to 3.75%-4.00%, its first increase since 2023, in a unanimous vote.

The accompanying projections kept another increase this year in play, confirming that inflation and the energy-price shock remain the Fed's chief concerns.

The US Dollar initially strengthened as yields rose, while US equities fell sharply after the announcement, the Dow Jones Industrial Average lost more than 600 points on the day, as traders repriced the prospect of higher borrowing costs for longer.

The Bank of England kept its Bank Rate unchanged at 3.75%, but it was not a genuinely dovish hold, as three Monetary Policy Committee members favour an immediate 25-basis-point hike, and the Bank warned that inflation could rise above 4% in early 2027 if energy-driven pressures persist.

The Bank of Japan raised its policy rate by 25 basis points to 1.25%, its highest level in 31 years, by a 7-2 vote, with Governor Kazuo Ueda making clear that the Bank is now concerned with preventing inflation from overshooting its 2% objective.