The primary conclusion drawn from the Federal Reserve’s recent decision is the unanimous agreement of all 12 voting members to implement a 0.25 percent increase in interest rates. This represents an important change after a three-year pause, a situation prompted by considerable and ongoing inflationary pressures.
It is worth noting that two of the voting members expressed ongoing support for further rate increases in 2026 should inflation levels persist at elevated rates, highlighting their observation of robust economic expansion. While the Federal Reserve refrained from providing explicit guidance, market participants are expected to carefully observe economic data concerning inflation in the meantime, as they evaluate possible future decisions leading up to the next meeting. The decision to raise interest rates may adversely affect both stock and bond markets by slowing economic growth, thereby exerting additional pressure on alternative investments.
Nevertheless, given the current situation, a moderate growth rate might be considered acceptable if inflation is managed successfully.
The Federal Reserve Chairman, during a recent press briefing, expressed a noteworthy perspective on the economy, indicating that it is showing signs of strengthening while simultaneously acknowledging that inflation remains excessively high.
This viewpoint may suggest a possible outlook that could result in further monetary tightening if inflation continues to rise.
It is important to highlight that despite the inflation rate surpassing the Federal Reserve’s target of 2 percent interest rates were significantly reduced in 2024 and 2025.
As a result, the Federal Reserve has expressed a definite intention for US interest rates to stay high for a prolonged period, signifying a departure from their previous accommodative approach, at least for the few more quarters.
While, the European Central Bank (ECB) raised its rate to 2.5 percent on September 10 and is considering an additional interest rate increase by year-end.
Last week, the Bank of Japan (BOJ) approved a rate hike to 1.25 percent, divided by a 7-2 vote, marking the highest level in 31 years.
In contrast, the Bank of England opted to maintain its rate on September 17 with a 6-3 vote, where three dissenting votes advocated for a 4 percent rate hike.
In an important decision, the Bank of England has suspended active sales of gilts for the next six months, aiming to alleviate the pressure from forced sales, which should contribute to stabilising medium-term debt portfolios. The market is currently anticipating an 80 percent probability of an interest rate hike.
Additionally, there is an 85 percent to 90 percent likelihood of a rate increase by the Reserve Bank of Australia (RBA), which is set to convene on September 29.
The prevailing global inflationary pressures can be attributed to geopolitical crises, especially the ongoing conflict between the United States and Iran, which affects not only advanced economies but also poses many challenges and threats for emerging markets.
These countries are facing significant economic challenges, especially if unrest in the Middle East continues, resulting in harmful impacts on foreign exchange reserves and complications in managing debt obligations.
Navigating budget deficits and maintaining balance of payments stability have become increasingly complex due to external factors, compounded by oil prices hovering around or exceeding $100 per barrel and logistical challenges that threaten their economic stability.
The urgent question that arises after the Federal Reserve’s announcement concerns the future state of the financial market.
Will the stock market be able to maintain its current stability? Additionally, what trajectory will the 10-year US Treasury bond yields take? Will these yields remain below the 5 percent threshold? Furthermore, will Brent crude oil prices decline below $95? Lastly, what implications will these movements have on gold prices?
Market participants are mainly focused on the yields of 10-year US Treasury bonds, which are particularly important at this time because of their impact on stock valuations, corporate financing, and the mortgage market.
Changes in bond yields have an impact on the pricing of gold and various other asset classes, highlighting the significance of the 5 percent yield as a vital benchmark.
The prevailing hawkish sentiment is expected to bolster the strength of the US dollar.
However, when it comes to Brent crude oil prices, I believe that $95 is a crucial level to keep an eye on. Having reached a peak of $110, Brent oil has closed around $103.80.
For pricing in international oil markets and for reference purposes, Brent crude remains the most important factor.
In the current environment, gold is encountering challenges in sustaining elevated price levels. Rising oil prices are limiting liquidity, and a hawkish Federal Reserve along with rising bond yields is creating an environment that is unfavourable for gold.
As a result, an important support level to watch in gold pricing is $4232. On the higher end, significant resistance is anticipated near $4500, which is expected to remain intact.
WEEKLY OUTLOOK - Sept 21-25
#GOLD @ $ 4378- Gold is anticipated to encounter resistance near $4460 before reaching the $4500 mark, which looks tough. Conversely, it will need to drop below $4280 to fall to $4210.
#EURO @ 1.1486- The Euro may find it difficult to rise past 1.1560. However, a drop below 1.1382 would heighten the likelihood of reaching 1.1320. If not, the next target could be 1.1610.
#GBP @ 1.3394- Pound Sterling faces resistance at 1.3480, which may hinder its rise, leading to a decline toward the 1.3310-20 range. A break below this level could lead to a drop to 1.3250. If this doesn’t happen, the Pound Sterling is expected to rebound.
#JPY @ 156.88- Following the BOJ’s interest rate hike, the Japanese Yen is still attempting to find its next direction. The $/Yen pair must exceed 158.58 to achieve a level of 159.85. However, if it fails to rise, it may test the 155.40 level. A breakthrough here could lead to a decline towards 153.50 or lower.
Copyright Business Recorder, 2026
The writer is former Country Treasurer of Chase Manhattan Bank. The views expressed in this article are not necessarily those of the newspaper
He tweets @asadcmka
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