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Happy Tuesday. Stock futures were falling and oil prices climbed as Wall Street prepared for the Federal Reserve’s interest rate decision.
The 10-year U.S. Treasury yield surged as much as four basis points to 5.02% on Tuesday, moving above its 2023 peak and hitting its highest level since 2007.
Markets closed lower on Monday as investors weighed artificial intelligence safety concerns, surging oil prices and rising bond yields.
“Markets remain cautious ahead of Wednesday’s Federal Reserve decision, with the combination of $100-plus oil, elevated bond yields and renewed questions around the AI trade creating a difficult backdrop for risk assets,” Daniela Hathorn, senior market analyst with Capital.com, said.
“A 25bp Fed hike is now almost fully priced, meaning the bigger catalyst will be whether Kevin Warsh presents it as a one-off recalibration or signals that persistent inflation requires further tightening.”
Hathorn said oil remains central to that debate. Brent crude is holding firmly above $100 a barrel after attacks on Saudi infrastructure and continued disruption around the Strait of Hormuz intensified concerns over Gulf supply.
“That creates an increasingly uncomfortable feedback loop: higher energy prices threaten growth but also make it harder for central banks to declare victory over inflation,” she said. “The dollar has benefited from the combination of higher yields, Fed hike expectations and defensive demand, while equities face the opposite pressure as borrowing costs and discount rates rise.”
Hathorn noted that technology is adding another layer of uncertainty after prominent AI executives called for a slower pace of development on safety grounds, with semiconductor stocks bearing the brunt of Monday’s selling.
“For now, this looks partly like a repricing of crowded positioning, but it lands at a sensitive moment given existing concerns around AI capex, valuations and the growing use of debt to finance infrastructure,” she said.
