The US Federal Reserve’s move to raise its target interest rate by three-quarters of a percentage point reverberated across Asia on Thursday as shares in the region rose, while crypto staged a mild recovery after weeks of losses.
The Federal Open Market Committee (FOMC) raised the short-term federal funds rate to a range of 1.50% to 1.75% to stem a disruptive surge in inflation, and projected a slowing economy and rising unemployment in the months to come.
Japan’s Topix benchmark rose 1.6% in morning trading, while South Korean shares rose more than 2%. The Korean won gained, while the benchmark bond yield fell.
Australian shares also rose on Thursday, led by gains in financials and tech, with the S&P/ASX 200 up 0.5%, snapping a four-day losing streak. The benchmark fell 1.3% on Wednesday.
China’s CSI 300 rose 0.5%, although Hong Kong’s Hang Seng bucked the trend, with the index falling 1.5%.
Gold was flat on Thursday after a jump in the previous session on falling Treasury yields and a weaker dollar.
The Fed cited lockdowns in China as “likely to exacerbate supply chain disruptions”. Beijing’s ongoing battle against the pandemic and Russia’s war on Ukraine were “creating additional upward pressure on inflation”, the Fed said in a statement.
ALSO SEE: Japan Records Biggest Monthly Trade Deficit in 8 Years
Reining In Prices
The Fed’s decision to raise interest rates by 75 basis points was welcomed by investors as they viewed that the economy was better off in the long run if the Fed succeeded in reining in prices now.
“With its largest interest-rate increase in 28 years, the Federal Reserve signalled a stepped-up determination to fight inflation, even if it ultimately takes a toll on the economy,” Preston Caldwell, head of US economics at Morningstar, said.
The FOMC vote was not unanimous. Esther George of the Kansas City Fed was a sole dissenter, favouring a 50bp hike in line with the bank’s previous communications.
Fed officials at the median projected the rate increasing to 3.4% by the end of this year and to 3.8% in 2023 – a substantial shift from projections in March that saw the rate rising to 1.9% this year.
Analysts at Barclays expect another 50bp rise by the Fed in September and rises of 25bp in November, December and February 2023.
They forecast a continued slowdown in the US economy. “For now, we don’t expect an outright recession, but with our base case incorporating a slower rate of GDP growth, the risk of a recession has become elevated,” the bank said in a note.
“We project 2.2% real GDP growth in 2023, while the Fed is expecting 1.7%. While the Fed is hoping to avoid a recession as collateral damage in its fight against inflation, it appears comfortable with the risk.”
- Reuters, with additional editing by George Russell
READ MORE:
China Lockdowns Could Force US Fed to Intervene on Inflation
Stablecoins Could be Safe Haven in ‘Market Distress’, Say Fed Scholars
China Stocks Slide as PBOC Resists Pressure to Drop Rates
