Fed signals possible rate hike, leaving Vietnamese investors to prepare for volatility

A hawkish speech by new Federal Reserve Chair Kevin Warsh has overturned market expectations about the path of U.S. interest rates, according to analysts cited by Tuổi Trẻ.

Nguyễn Minh Đức of FinSuccess said financial markets were entering a new period of volatility because U.S. inflation had not been fully brought under control. Core personal consumption expenditures prices were flat in July, while core goods prices edged higher and some service components remained “sticky.” Trimmed PCE inflation also rose from 2.26% to 2.28%, suggesting that demand-side pressure had not eased enough for the Fed.

The Fed also faces high long-term Treasury yields. Yields on 30-year government bonds remain elevated as investors worry about the U.S. government’s ability to service public debt, which has exceeded $40 trillion. Higher long-term yields feed directly into mortgage rates. Analysts said a rate increase could push yields higher still and risk braking the U.S. economy too sharply, particularly because housing accounts for 70% of U.S. lending.

The market had largely absorbed inflation data that matched expectations. Warsh’s remarks at the Jackson Hole conference changed that calculation. Data from the FedWatch monitoring tool showed that bets on the Fed keeping rates unchanged in September fell from 66% to 40%. Markets also increased bets on three or four rate hikes in 2027.

For Vietnam, Nguyễn Anh Khoa, director of research at Agribank Securities, identified foreign capital flows and the exchange rate as the main channels of potential pressure. Higher U.S. rates could make dollar assets more attractive and strengthen the dollar, while also making the VND-U.S. dollar rate more sensitive.

Nguyễn Minh Đức said relatively high domestic interest rates could help keep the exchange rate stable, although the State Bank of Vietnam would likely act more cautiously. Khoa also warned that defensive investor sentiment could sharply reduce stock-market liquidity, especially around international economic data releases, with such episodes more likely between September and December.