Wall Street bled on Wednesday, with shares sliding to their lowest levels since July as traders priced in a hawkish pivot. The Federal Open Market Committee unanimously hiked the benchmark rate by 25 basis points to 3.75%–4%, breaking a long pause that had defined the 2023-2024 period. It wasn’t just the hike; the dot plot signaled more. Traders now anticipate at least one additional increase before the year ends, reshaping the entire yield curve expectation.
The ripple effect hit Asia hard, but unevenly. In Seoul, the Kospi shrugged off the US sell-off, climbing 0.36%, while Japan’s Nikkei 225 added 0.24% and the broader Topix jumped 0.76%. Contrast that with Hong Kong, where Hang Seng futures implied a 1.2% drop. India’s GIFT Nifty suggested a muted, potentially red opening for domestic traders. Complicating the local picture, Thursday marks the start of subscription for the National Stock Exchange IPO, a factor that could pull liquidity from other mid-cap and small-cap stocks.
Fed Chair Kevin Warsh made no apologies for the tightening. Speaking to reporters, he noted that too many goods and services categories are still seeing annualized price increases above 3%, both over six and 12-month horizons. “We are committed to bringing inflation down,” the sentiment ran, per a Bloomberg report. Yet, the political pressure is mounting. President Donald Trump took to social media post-announcement to argue rates should be at 1% or lower, a stark disconnect from the Fed’s current trajectory that markets are now digesting.
Treasuries tried to stabilize after the initial shock. The two-year note yield eased two basis points to 4.72%, pulling back from its highest level since 2024. The 10-year and 30-year yields also slipped three basis points. Asian bonds followed suit, recovering some ground after an initial dip. The move suggests investors are positioning for a pause after the next hike, rather than a prolonged tightening spiral, although the uncertainty remains high.
The focus now shifts eastward, with the Bank of England’s decision due Thursday and the Bank of Japan’s on Friday. These central banks will have to navigate their own inflation data while watching the Fed’s lead. Oil prices added another variable to the mix. Brent crude fell more than 1% to around $104.30 a barrel, and West Texas Intermediate dropped 1.2% to $101.19. The retreat followed news that Saudi Arabia is restoring half the capacity of its East-West pipeline after drone strikes, alongside Trump’s comment that the conflict involving Iran would end “very soon.”