US Fed Hikes Rates Amid Soaring Oil Prices

The US Federal Reserve has announced its first rate hike in over three years, a move that was widely expected. The increase of 25 basis points brings the target range to 4.5-4.75 per cent. However, what's new is the updated projections pointing to further increases before year-end and an overall hawkish outlook continuing into 2027.

Tai Hui, J.P. Morgan Asset Management's APAC Chief Market Strategist, said the hike was largely anticipated given the current state of the US economy. Growth and the jobs market remain resilient, with inflation trending above target at 3.7 per cent. The Fed has scope to tighten without immediately threatening the labour market.

However, VanEck's Head of Investments & Capital Markets, Russel Chesler, raised concerns that markets may not be prepared for what's to come. Soaring oil prices threaten to intensify inflation across the global economy. Brent crude is now at US$106 up from US$90 at the beginning of the month.

Chesler believes the likelihood of both the Fed and the Reserve Bank of Australia (RBA) needing to raise rates more than once has increased. He predicts a 25-basis-point cash rate increase for the RBA at its next meeting in just under two weeks, bringing it to 4.7 per cent.