The Federal Reserve delivered its first rate hike since 2023 on September 16, raising the federal funds target range by 25 basis points to 3.75%-4.00% in a unanimous 12-0 vote, with Chair Kevin Warsh warning that inflation has been 'too high for too long' and the dot plot signalling further tightening ahead. Geopolitical risk remains acutely elevated as Middle East tensions — centred on the US-Israeli conflict with Iran, Saudi pipeline disruptions and Strait of Hormuz supply concerns — continue to underpin a structurally elevated oil price even after WTI shed more than 3% on Wednesday to settle near $102/bbl. The US dollar strengthened materially (DXY +0.66% to 100.31), 10-year Treasury yields pushed back to 5.00%, and the VIX ticked up 2.97% to 17.71, reflecting investors repricing the 'higher for longer' scenario against a backdrop of still-resilient US retail sales that beat consensus at +1.2% for August. Markets are now pricing roughly a 50% probability of a further Fed hike by October, keeping cross-asset volatility skewed to the upside in the near term.
For Asia-Pacific markets opening Thursday, the hawkish Fed read initially weighed on risk appetite, though the partial retreat in crude oil prices and a bounce in US futures — S&P 500 futures pointing +0.6-0.8% pre-market — offered a partial offset. The stronger US dollar pushed USD/JPY to 155.27 (+0.57%), intensifying pressure on the Bank of Japan ahead of its policy rate decision due 22:30 ET tonight, where markets expect the BOJ to hold below 1.25%. The ASX 200 closed Wednesday's session up a modest 0.28% to 8,696.5 with the ASX VIX falling 4.47% to 13.69, suggesting domestic volatility expectations remain contained even as global macro risks build; however, ASX energy and financial names will face headwinds from the Wall Street sector selloff, while materials and miners may find tentative support from copper (+0.99%), gold (+1.26% to $4,387.50/oz) and aluminium (+1.40%) overnight gains.