Asian markets drop as Fed signals end of pandemic-era cheap cash

Asian markets drop as Fed signals end of pandemic-era cheap cash

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HONG KONG: Asian shares tumbled on Thursday after a late sell-off on Wall Street in response to a surprisingly hawkish turn by Federal Reserve Chairman Jerome Powell, who suggested the bank will start raising interest rates in March.

After one of the Fed’s most anticipated meetings in a while, he said the world’s No. 1 economy was on the road to recovery and unemployment was largely under control, allowing officials to start pulling back from the start of the pandemic. crutches.

At a news conference, he told reporters that “the committee intends to raise the federal funds rate at its March meeting, assuming conditions are right”.

While traders have been planning a March rate hike for months, investors were spooked by Powell’s apparent hawkishness as he refused to set a timetable for further rate hikes or plan to offload assets on the balance sheet , which helps reduce costs.

Analysts said the fact that the bank appeared less moved by recent market losses indicated to traders a high bar for the so-called “Fed put” — referring to its willingness to backstop investors in times of trouble.

The Fed’s pandemic-era financial largesse of bond-buying stimulus and record low interest rates helped the global recovery and fuel a two-year equity rally.

But the age of cheap cash is being brought to an end as the bank embarks on a fight to bring down inflation from a four-decade high.

Officials still believe that the price rises will be brought under control as economies reopen and supply chain problems abate, but the need to prevent them running away now is forcing them into an aggressive pivot.

The meeting “played out more hawkishly than we expected”, said Steven Englander at Standard Chartered Bank.

“The (policy board) statement was largely as anticipated, but… Powell emphasised upside risks to inflation, pointing to a steady pace of policy withdrawal.”

Powell’s comments sent Wall Street sharply lower from intraday levels.

Asia is close behind. Tokyo, Hong Kong and Sydney fell more than 2%, Seoul fell 3%, and Shanghai, Singapore, Wellington and Jakarta were also hit hard.

Commentators are speculating on how many times the Fed will raise rates in March and how many more, with estimates ranging from three in total this year to as many as five.

But there are concerns that Powell is refusing to guarantee rate hikes will ease.

“At least in today’s case, Powell’s desire for flexibility was viewed as hawkish, given his comments regarding inflation,” Sameer Samana, of Wells Fargo Investment Institute, said.

“It sounds like he is acknowledging the Fed is behind the curve and can’t commit to a path that won’t upset financial markets.”

Oil prices slipped in early trade, with a strong rebound on Wednesday taking Brent above $90 for the first time in seven years, on heightened tensions between Ukraine and Russia and data showing another sharp drop in U.S. inventories as demand improved.

Also in the spotlight is an upcoming meeting of the Organization of the Petroleum Exporting Countries and other major producers, where they will discuss plans to continue increasing output.

“Energy traders are anticipating higher energy prices on potential geopolitical risks and as OPEC+ will stick to their plan to deliver another modest increase to production at next week’s meeting,” said OANDA’s Edward Moya.

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