Aussie investors have another reason to keep a close eye on overseas markets on Thursday.
The US Federal Reserve has raised interest rates for the first time since July 2023, lifting its benchmark rate by 25 basis points to between 3.75% and 4%.
The hike itself wasn't a huge surprise, but Wall Street didn't exactly love what came next.
US shares started slipping as Fed chair Kevin Warsh spoke after the decision.
By the close, the Dow Jones Industrial Average Index (DJX: .DJI) had fallen 631 points, or 1.21%, while the S&P 500 Index (SP: .INX) dropped 0.45%. The Nasdaq Composite Index (NASDAQ: .IXIC) finished almost flat, down 0.01%.
And now some of that weakness looks set to follow us home.
The S&P/ASX 200 Index (ASX: XJO) futures are currently pointing around 0.7% lower ahead of today's open.
Image source: Getty Images
Why did the Fed raise rates?
The Fed didn't have much disagreement on this one, with all 12 voting members backing the increase.
According to the Fed, the US economy is still moving along at a "solid pace", with domestic spending holding up, productivity growth remaining strong, and unemployment little changed.
Inflation, though, is still sitting above the Fed's 2% target.
Warsh made that pretty clear after the decision, saying inflation was still too high and had stayed there for too long.
That sent bond yields higher.
The US 10-year Treasury yield moved back above 5%, finishing around that level for the first time since 2007.
Why did Wall Street fall?
Once the first hike was out of the way, attention quickly moved to what the Fed might do next.
The Fed's updated projections put the median federal funds rate at 4.1% by the end of 2026.
Reuters reported that 16 of 18 policymakers expect at least one more increase before the year is out.
The US dollar also strengthened after the decision, while the Australian dollar slipped below US 71 cents against the greenback overnight.
What does this mean for the ASX?
For me, today's open probably isn't the main thing to focus on.
A weaker start would be pretty understandable after Wall Street's reaction overnight.
What I'd rather watch is whether the ASX can settle down once trading gets underway, or whether the selling keeps building through the session.
Another US rate hike is still possible before the end of the year, so the Fed could remain a factor for ASX investors over the coming months.
