Silver price rebounds ahead of expected Fed rate hike, Warsh press conference

On September 16, Asian stocks faced challenges as investors anticipated a potential interest rate increase by the Federal Reserve, while a slight dip in oil prices provided limited relief. Despite inflation remaining well above the Federal Reserve's target and the Middle East conflict driving crude prices above $100 per barrel, central bankers were widely expected to raise borrowing costs for the first time since 2023.

This expectation has dampened the recent global equity rally, which had pushed several markets to record highs during the first half of the year. Fed Chair Kevin Warsh had previously signaled a hawkish stance during a gathering of central bankers and economists in Jackson Hole, Wyoming, which further fueled expectations of a rate hike.

Subsequent data revealing robust job growth and persistent high inflation solidified these expectations, with traders pricing over a 90 percent chance that board members would opt for monetary tightening. The prospect of inflation remaining elevated for an extended period pushed 10-year US Treasury yields above 5 percent, a level not observed since the 2007 financial crisis.

Traders closely monitored the vote outcome, particularly whether any of the 12 Federal Reserve members—led by Chair Warsh—might dissent, as a unanimous decision to raise rates could signal a potential start to a new rate hiking cycle. Conversely, if three or more members dissented, or if Warsh himself dissented (which was considered unlikely), it might be viewed as a one-off "insurance hike" rather than the beginning of a broader tightening cycle.

After a decline on Wall Street and in Europe, Asian equities experienced a mixed day on Wednesday, with technology firms grappling with a call from top AI leaders for a slowdown in sector development. Tokyo, Shanghai, Sydney, and Manila experienced declines, while Hong Kong, Singapore, Wellington, Taipei, and Jakarta also saw drops.

Seoul remained flat. The Federal Reserve's announcement would be followed the next day by the Bank of Japan, which is also anticipated to raise rates due to rising inflation and the need to support the yen. The Japanese currency had strengthened against the dollar this month, reaching a 40-year low in July, aided by a historic joint Japan-US intervention; however, analysts believe it could benefit further if the Fed struggles to curb inflation.

Currency markets continue to price in a consensus that US inflation will eventually return to 2 percent, but there is a possibility that it could settle closer to 3 percent. If inflation settles at the higher end, central bank credibility in controlling prices would be called into question, potentially leading investors to hold less US dollars due to higher US interest rates.

Meanwhile, the UK Bank of England is projected to maintain its benchmark rate as the UK economy grapples with sluggish growth. The recent drop in oil prices, despite both main contracts remaining well above $100 per barrel due to ongoing tensions between the US and Iran and Saudi Arabia keeping a key pipeline closed, provided some optimism.

Additionally, preparations are underway for a summit between US President Donald Trump and Chinese President Xi Jinping, with reports suggesting they may agree on some tariff reductions, possibly extending a one-year truce initiated in 2025.