ASX set to slide, Wall Street steady as Fed raises rates, signals one more hike this year

The US stock market has pared gains after the Federal Reserve showed it’s trying to get the nation’s high inflation under control by hiking interest rates for the first time in three years. A drop for oil prices and easing pressure from the bond market helped keep Wall Street firm.

Investors would almost always prefer lower interest rates because higher rates tend to slow the economy’s growth and undercut the prices for stocks and other investments. But because prices for gasoline, food and other costs of living have been shooting so much higher for so long since the COVID-19 pandemic, the thought is that the short-term pain will be worth it to get inflation under control.

The S&P 500 was up 0.2 per cent as Fed chair Kevin Warsh opened his press conference and was on track for just its second gain in the last eight days. The Dow Jones was down 0.4 per cent and the Nasdaq composite was 0.4 per cent higher. The Australian sharemarket is set to decline, with futures at 4.28am AEST pointing to a fall of 41 points, or 0.5 per cent, at the open. The ASX added 0.3 per cent on Wednesday.

Stocks got help from some easing for oil prices and pressure from the bond market. The price for a barrel of Brent crude, the international standard, fell 2.9 per cent to $US105.58. Oil had gotten to nearly $US110 early this week on worries that the war with Iran will continue to clog the global flow of oil.

That helped send the yield on the 10-year Treasury, which is the centrepiece of the bond market and dictates where rates for mortgages and other loans go, down to 4.94 per cent from 5.00 per cent late Tuesday. Earlier this week was the first time since 2023 that the 10-year yield topped 5 per cent.

Even with Wednesday’s easing, the pressure remains high. Brent oil is still well above its $US72 price from before the war with Iran, when the 10-year yield was at just 3.97 per cent.

That’s why the Fed raised rates on Wednesday, after it had been on pause for months following cuts to rates in 2024 and 2025.

Fed officials also released forecasts Wednesday showing that the median member expects interest rates to be higher at the end of this year, next year and the following one than expected a few months earlier.

A report on Wednesday morning showing that shoppers spent much more at US retailers last month than economists expected may have emboldened the Fed. It could offer a signal that the economy remains strong enough to withstand higher rates.

On Wall Street, stocks in the artificial-intelligence industry held steadier following their worldwide slide earlier in the week, after leaders of the AI industry called for a slowdown in development to address safety issues for humanity.

Nvidia rose 1.9 per cent, and Advanced Micro Devices climbed 4 per cent.

They helped offset a drop of 12.5 per cent for J.B. Hunt Transport Services. Its chief financial officer told a conference of analysts late Tuesday that it’s facing higher costs and expects its earnings to drop 5 per cent to 10 per cent from the second quarter to the third.

In stock markets abroad, indexes rose across much of Europe and Asia.