Asian Stocks Set to Fall After Fed Inflation Warning
Asian stocks were set to open lower on Thursday after Federal Reserve Chairman Jerome Powell said he expects inflation to pick up significantly in the coming months. The Fed left interest rates unchanged at its meeting Wednesday and indicated it still sees two more cuts this year. But Powell said economic uncertainty fueled by tariffs and inflation risks continue to complicate the central bank’s efforts to ease policy. The dollar gained while Treasuries and U.S. stocks were little changed on Wednesday. U.S. markets were closed Thursday for a holiday.
Equity futures for benchmarks in Japan, Australia and Hong Kong were down on Thursday morning in Asia. The subdued moves did little to support safe-haven assets such as gold, the yen or the Swiss franc, which all traded in tight ranges on Wednesday. Oil was little changed as President Donald Trump said he would hold another meeting to discuss the conflict between Israel and Iran. Asked Wednesday if he was moving closer to bombing Iran, Trump said, “I might. I might not.”
The generally steady movement suggested a lack of direction across global markets as investors await more details on the global economy, U.S. inflation and the prospect of rising tensions in the Middle East. Powell noted that higher tariffs would likely raise prices, while adding that the impact on inflation could be more persistent. He also declined to say whether he would stay on beyond the end of his term. “Ultimately, the cost of tariffs is going to be paid and some of it is going to be borne by the end consumer,” Powell said. “We know that because that’s what businesses are saying, that’s what the data is saying from the past.
We know that’s going to happen and we just want to see a little bit of that before we make any premature judgments,” he added. The Fed’s decision to keep rates steady — coupled with Powell’s latest warning about tariffs — underscores the delicate balance facing policymakers as they navigate the economy toward sustained expansion. While officials continue to forecast two rate cuts by 2025, they have lowered their estimates for growth this year while raising their forecasts for unemployment and inflation.
“Powell is playing it safe,” said Haris Khurshid, chief investment officer at Karobaar Capital in Chicago. "They're sticking with two cuts for now, but they're clearly rattled by tariffs. There's no urgency to move. This is a tough spot: growth is slowing, inflation is holding up, and geopolitical risks are heating up." While the median expectation for two rate cuts by 2025 was unchanged, a number of officials lowered their projections. Seven now see no rate cuts this year, compared with four in March.
Two others have pointed to one cut this year. "They're clearly in wait-and-see mode," said Chris Zaccarelli at Northlight Asset Management. "They're just sitting on their hands, waiting to see if tariffs are going to raise inflation or the job market is starting to falter, and whichever part of their dual mandate is hit first is likely to guide whichever direction they take."
The New Zealand dollar was steady on Thursday after gross domestic product data came in slightly stronger than consensus expectations. Australian and New Zealand bond yields were little changed. Elsewhere in Asia, data due include Swift payments to China, employment in Australia, and interest rate decisions in Taiwan and the Philippines. Later on Thursday, the central banks of Switzerland, Norway, Turkey and the United Kingdom will also announce interest rate decisions.
Source: Bloomberg
