Asian markets rally with Wall Street on softer Fed tone
HONG KONG — Most Asian markets rose Thursday and the dollar weakened further on hopes the Federal Reserve’s campaign of interest rate hikes could be close to an end after it acknowledged progress in its long-running battle against inflation.
Tech firms led a surge in the Nasdaq and S&P 500 on Wall Street after the central bank unveiled its forecast quarter-point increase in borrowing costs but also noted progress in bringing prices under control.
And while chair Jerome Powell warned officials would need “substantially more evidence” to be confident that inflation is on a sustained downward path, analysts said he appeared unmoved by market expectations for a lower “terminal rate”.
The decision to lift rates by the smallest amount in almost a year came after a series of data points suggested the world’s top economy was slowing down, with inflation at its lowest since October 2021.
The broadly dovish turn from the Fed provided an extra fillip to investors, who had grown concerned that January’s rally may have been overdone and that the rate hikes would continue for well into the year.
“The message from chair Powell and the Fed committee members was to be ‘mission not-accomplished’, that the disinflation process had only just begun and there is more to be done to get inflation back to the 2% target with on-going rates hikes,” said Kerry Craig at JP Morgan Asset Management.
“However, what was delivered was a more dovish message that didn’t really push back on the market expectation that the Fed won’t reach a policy rate over five percent.”
He added that Powell “seems to be less concerned about short-term moves in financial conditions and more so with the 450 basis points in policy tightening in the last 12 months and the lagged impact it would have on the economy”.
“Even as Chair Powell reiterated the Fed’s commitment to getting inflation back to the mandated percent target, it also referenced the ongoing or expected disinflation in the economy just as much.”