Asian Stocks Set to Fall as Fed Hesitates on Rates After AI Concerns
Asian stocks were poised to decline on Thursday, with investors growing increasingly wary of artificial intelligence stocks, after a divided Federal Reserve kept interest rates on hold and left the door open for further increases.
A Divided Fed Leaves Markets Guessing
The Federal Reserve kept its benchmark interest rate on hold at its meeting, but the vote was not unanimous, leaving markets guessing about the central bank’s future plans. The uncertainty about the path of monetary policy was enough to send bonds lower, with investors betting that the Fed’s new inflation-fighting policy may not be over.
Fed funds futures, which reflect market expectations of where rates will be in the future, suggest a roughly 60 percent chance the central bank will raise rates at its September meeting, with traders pricing in roughly 33 basis points of tightening in the fourth quarter.
“The challenge for markets is that it appears that the communication from the policymakers is diverging from the reality of what is happening in financial markets,” said Kerry Craig, global head of markets at J.P. Morgan Asset Management. “We’ve had a shift in the leadership at the Fed, so it is understandable that markets are challenging exactly how much tightening is needed.”
Why Asian Stocks Are Set to Fall
The decision to keep rates on hold came amid a challenging week for Asian stocks, which had sold off aggressively on worries about the sustainability of the artificial intelligence investment boom. Technology stocks were particularly hit as large technology firms ramped up their spending on semiconductor manufacturing, leaving investors questioning whether the returns on such massive investments would justify the costs.
The worries about AI valuations added to the uncertainty about monetary policy, leaving several major Asian stock markets likely to finish the week lower, even if individual sessions saw alternating gains and losses.
Crude Oil Prices Dip After Rally
Brent crude oil prices jumped more than 7 percent intraday on Wednesday after attacks on tankers in the Middle East, but finished the day just below $90 a barrel as shipping traffic continued in the region despite the violence. The U.S. dollar sold off sharply against major currencies after the jobs report, with the Fed’s divided policymaking dampening hopes of immediate rate cuts. Meanwhile, longer-dated Treasury yields hit a 19-year peak, with investors growing increasingly wary of the trajectory of monetary policy.
The outlook for Asian markets is clouded by the uncertainty about the Fed’s policy path, on top of worries about trade tensions and fears about the sustainability of the AI investment boom. With the central bank providing little guidance on its intentions, investors are likely to remain on edge in the run-up to the Fed’s September meeting.
Reporting was conducted from July 30 and July 31, 2026.
