Fed Hike Triggers Rate Expectations Amid Global Yield Surge

The US Federal Reserve has started a monetary-policy tightening cycle by raising interest rates for the first time since 2023. The Fed increased interest rates by 25 basis points, signaling that more hikes may follow. Steve Englander, global head of G10 FX research and North America macro strategy at Standard Chartered, expects one more rate hike in December. However, he notes that there's a risk of additional hikes.

Englander believes the Reserve Bank of India (RBI) might also raise its repo rate by 50 basis points, split between October and December meetings. This move could be driven by rising inflation and elevated crude oil prices. The RBI may consider an additional 50-basis-point increase if higher oil prices spill over into broader price pressures.

The rise in global yields, particularly US Treasuries above 4.5%, has weighed down capital flows towards emerging markets. Countries with limited exposure to artificial intelligence and high commodity exposure are likely to face pressure on their capital inflows. Englander notes that China might be an exception, as its monetary policy is expected to remain supportive of growth amid low inflation.