Fed raises rates for first time in three years as yen weakens, Dow posts worst week since March

Monday, September 21, 2026 | Review: September 14–September 20

Two major central banks tightened monetary policy last week. The Federal Reserve announced a 25-basis-point rate increase in the early hours of September 17, Beijing time, its first hike since July 2023. The Bank of Japan followed the next day, raising its policy rate to 1.25%. Despite the BoJ's move, the yen weakened, with USD/JPY briefly reaching a two-week high. Persistent concerns over Middle Eastern supply kept Brent crude above $100 a barrel. US equities diverged: the Dow Jones Industrial Average recorded its worst week since March, while the Nasdaq Composite advanced.

Last Week's Main Theme: Central Banks Tighten as High Oil Prices Sustain Inflation Pressure

The Federal Open Market Committee (FOMC) voted unanimously, 12–0, to raise the federal funds target range by 25 basis points to 3.75%–4.00%. The increase was widely expected. The latest economic projections put the median year-end policy rate forecast at 4.1%, about 25 basis points above the midpoint of the current range, suggesting that one further hike remained possible this year. The median PCE inflation forecast was raised from June's 3.6% to 3.7%.

At the conclusion of its two-day policy meeting on September 18, the Bank of Japan voted 7–2 to raise its target for the uncollateralized overnight call rate by 25 basis points to around 1.25%, effective September 24. It also indicated that further increases would depend on economic and price developments.

On energy supply, Saudi Arabia's East–West pipeline was shut down after a drone attack in mid-September, temporarily disrupting oil loading at the Red Sea port of Yanbu. Disruptions to Middle Eastern crude supply kept oil prices elevated, leaving little prospect of near-term relief from inflation pressure and providing an important backdrop to the Fed's decision to resume rate hikes.

FX and Rates: Yen Weakens Despite BoJ Hike

The dollar strengthened after the Fed's decision. With the BoJ's increase also fully priced in, investors turned to Governor Kazuo Ueda's guidance on the pace of future tightening. On the day of the decision, USD/JPY rose as much as 1.3% to 158.05, a two-week high, before easing to around 156.7.

The 10-year US Treasury yield stood near 5.00% at the September 18 close.

Gold: Under Pressure on the Day of the Rate Hike

Following the Fed's announcement, a stronger dollar pushed spot gold down 1.2% to $4,240.1 an ounce. Rising policy rates increase the opportunity cost of holding non-interest-bearing assets, leaving gold's outlook dependent on the Fed's rate path and the dollar's performance.

Oil: Brent Holds Above $100

On September 17, Brent crude settled at $104.82 a barrel and WTI at $101.91. With exports through Yanbu disrupted by the East–West pipeline shutdown, markets focused on repair progress and developments in the Middle East.

Equities: Dow Records Worst Week Since March

US stocks diverged over the September 14–18 trading week. Equities fell on the day of the rate hike before rebounding the following day. At the September 18 close, the S&P 500 stood at 7,650.50, down 0.1% for the week; the Dow Jones Industrial Average closed at 51,682.64, down 1.7%, its worst weekly performance since March; and the Nasdaq finished at 26,522.55, up 0.7%.

Cryptocurrencies: Limited Impact from the Rate Hike

On the day of the Fed's hike, Bitcoin briefly approached $75,000 before moving back above $76,000, indicating a relatively muted market response.

This Week's Watchlist (Beijing Time)

Risk Warning: This article is for reference only and does not constitute investment advice. Financial markets involve risk, and past performance is not indicative of future results.