Morning Bid: Fed lifts the hawkish bar for BoE

The Federal Reserve announced a series of interest rate hikes on Thursday, marking a shift in their hawkish stance. Kevin Warsh, a member of the Fed's board, delivered the bank's first rate increase in over three years, aligning with his colleagues to demonstrate the central bank's commitment to fighting inflation. Unlike previous announcements, Warsh did not provide forward guidance, keeping a focus on data points rather than predictions.

Despite this, market participants anticipate three further rate hikes this year, as futures pricing suggests. Goldman Sachs, however, hinted at a potential October hike, citing the need to support a more timely return to the Federal Reserve's 2% inflation target. The Fed's actions have put pressure on other central banks, with the Bank of England expected to maintain current rates but likely split on the issue of energy prices, potentially leading to a November hike.

The Bank of Japan is also expected to raise rates on Friday. Globally, central banks across the U.S., Europe, Britain, Australia, and New Zealand are projected to tighten policy by the end of the year. As market participants monitor these developments, short-term Treasury yields surged to their highest levels since mid-2024, pushing the dollar to a seven-week high.

Long-term bonds, however, experienced relief with the 10-year yield staying below the 5% threshold, providing a boost to Asian stock markets. European bourses were expected to open with a 0.5% increase, while Nasdaq and S&P futures showed gains of 0.6% and 0.5%, respectively. The coming days will reveal how resilient markets are in the face of recurring supply shocks and tighter monetary policy.