Fed Rate Hike: What it Means for Global Markets

The US Federal Reserve is expected to announce its policy decision on Wednesday, September 16, after a two-day meeting. Markets are bracing for a fresh rate hike as inflation, bond yields, and oil prices continue to climb. This would be the first rate increase in over three years.

Investors are also looking at Fed Chair Kevin Warsh's post-decision remarks for clues on the inflation outlook and the likely path of rates. Morgan Stanley expects another quarter-point rate increase in December, following recent US inflation data that was stronger than expected.

A rise in US Treasury yields above 5% could make emerging markets such as India less attractive to foreign institutional investors (FIIs), which have already sold over ₹14,400 crore worth of Indian stocks in the past two weeks. However, much of the rate hike's impact may be already factored into market prices.

Axis Capital said the RBI was likely to remain on hold in October despite upside risks to inflation, with a rate hike currently expected in December. A US Fed hike could force the RBI to act earlier in October.