New York (AFP) - Oil prices jumped, US bond yields rallied and equities retreated Tuesday as the Federal Reserve looked set to raise interest rates, with high inflation and AI concerns dominating market sentiment.

Brent crude futures again pushed towards $110 a barrel, while average diesel prices in the United States struck a record high of just under $6.27 a gallon, heaping pressure on President Donald Trump ahead of midterm congressional elections.

“There’s no let-up in the volatility rippling through financial markets, with energy prices staying painfully elevated and worries swirling about the knock-on effect for inflation and interest rates,” said Susannah Streeter, chief investment strategist at Wealth Club.

The yield on the 10-year US Treasury note hit 5.03 percent, a level last seen in 2007 before the global financial crisis, as investors price in a likely hike in US interest rates.

The US Federal Reserve began a rate-setting meeting Tuesday with markets expecting policymakers to pull the trigger on a hike to tackle persistently high consumer prices in the world’s biggest economy.

Market expectations for a 25-basis-point rate increase have risen sharply after official data published last week showed US annual inflation remaining far above the Fed’s target.

With the crisis in the Middle East showing little sign of abating and Yemen’s Houthi rebels taking control of a crucial outlet for shipping, crude has spiked this month to more than $100 a barrel.

The surge in energy costs has ramped up pressure on central banks to raise borrowing costs.

The European Central Bank last week lifted interest rates in the eurozone.

The Bank of England is forecast to maintain its benchmark rate on Thursday as the UK economy struggles for growth.

Major Wall Street indices spent the session in the red following losses in Europe and Asia. The broad-based S&P 500 finished down 0.5 percent.

“The heavier cost of capital, rising fuel charges and worries about the potentially adverse societal impact of AI’s rapid adoption have pushed stocks to their weakest prices in roughly six weeks ahead of tomorrow’s Fed decision,” said a note from Jose Torres of Interactive Brokers.

If Fed policymakers vote to hike on Wednesday, it will be the first time the Fed has raised rates since 2023, when the central bank was still battling post-pandemic inflation.

Such a move will be sure to anger Trump, who has launched an unprecedented campaign to pressure the independent central bank to lower rates in order to spur economic activity.

- Key figures at around 2030 GMT -

Brent North Sea Crude: UP 2.9 percent at $108.75 per barrel

West Texas Intermediate: UP 4.4 percent at $105.83 per barrel

New York - Dow: DOWN 0.6 percent at 52,093.11 (close)

New York - S&P 500: DOWN 0.5 percent at 7,585.73 (close)

New York - Nasdaq Composite: DOWN 0.8 percent at 25,981.57 (close)

London - FTSE 100: DOWN 0.4 percent at 10,658.13 (close)

Paris - CAC 40: DOWN 0.3 percent at 8,090.28 (close)

Frankfurt - DAX: DOWN 0.2 percent at 25,402.28 (close)

Tokyo - Nikkei 225: FLAT at 63,484.10 (close)

Hong Kong - Hang Seng Index: DOWN 1.0 percent at 24,667.24 (close)

Shanghai - Composite: DOWN 0.5 percent at 3,864.28 (close)

Euro/dollar: DOWN at $1.1542 from $1.1549 on Monday

Pound/dollar: DOWN at $1.3477 from $1.3499

Euro/pound: UP at 85.64 pence from 85.54 pence

Dollar/yen: UP at 155.09 yen from 154.35 yen

burs-jmb/sla