Fed Rate Hike Looms as Asian Stocks Struggle Amid High Inflation

Asian stock markets struggled on Wednesday as investors prepared for an expected interest rate hike by the Federal Reserve. The central bank is widely tipped to increase borrowing costs for the first time since 2023, citing stubbornly high inflation and strong jobs creation data.

The prospect of higher rates has dealt a heavy blow to global equities, which saw several markets hit record highs in the first half of the year. With inflation still running above the Fed's target, traders are pricing a more than 90 percent chance of an interest rate hike.

Expectations were cemented by a hawkish speech from Fed boss Kevin Warsh at Jackson Hole last month, and reinforced by recent data showing strong jobs creation and high inflation. The 10-year US Treasury yields have risen above five percent, the highest level since 2007 before the global financial crisis.

The Fed's decision will be closely watched, particularly for the vote count, with traders pricing a unanimous rate hike making another increase more likely. However, if there are dissents or a narrow majority in favor of rates, it could be seen as an 'insurance hike' rather than the start of a new cycle.

Asian equities were mixed on Wednesday, with tech firms still reeling from a call for a slowdown in AI development among top leaders. The Fed's announcement will be followed by the Bank of Japan, which is expected to hike rates due to rising inflation and pressure to maintain support for the yen.