Asian markets rally on Fed growth, rate outlook

EQUITIES rallied in Asia yesterday after the Federal Reserve ramped up its outlook for the US economy but reiterated its pledge to maintain its ultra-loose market-friendly monetary policies for as long as needed.

With growth already expected to burst higher this year, huge stimulus spending kicking in and vaccines being rolled out, investors have in recent weeks grown worried about a surge in inflation that could force the central bank to reconsider its dovish stance.

But the Fed's decision after its latest board meeting was music to the ears of traders.

Policymakers forecast the world's top economy to expand 6,5 percent this year, two percentage points above its earlier projection, thanks to trillions of dollars in government spending and the expected easing of lockdown measures that will allow people to get back to their daily lives.

The Fed “will continue to provide the economy the support it needs for as long as it takes”, he said.

“The overarching message from the Summary of Economic Projections and Chair Powell's press conference was of greater optimism on the outlook but a central bank that is not in a hurry to raise rates,” said Axi strategist Stephen Innes.

And Tai Hui, at JP Morgan Asset Management, said the Fed justified its decision to maintain its policy position by saying the impact of Joe Biden's US$1,9 trillion will be felt this year and the economy would revert to normal from 2022.

“It remains to be seen if this will be enough to convince investors with more hawkish inflation expectations, who may be fretting about a sustained rise in consumer prices,” he added.

“The market reaction suggests investors are satisfied with the Fed's explanations for now. Inflation is expected to rise in the coming months, and the Fed may need to provide more handholding to the market during this price spike.”

Wall Street rallied on the news, with the Dow ending above 33 000 for the first time, while the S&P 500 also chalked up a record.

Asian trading floors were also upbeat. Hong Kong jumped 1,9 percent and Tokyo put on one percent, while Singapore and Jakarta put on more than 1 percent.

Shanghai, Seoul, Mumbai, Taipei, Manila and Bangkok also rose.

“It looks like up, up and away from here” for equities, Mahjabeen Zaman, a senior investment specialist at Citigroup Australia, told Bloomberg TV.

The Bank of Englands next policy meeting is up next, with investors expecting it to also maintain the status quo, with the country's economy getting a boost from good progress in the government's vaccination drive, which has brightened the outlook. — Bloomberg.