Asian markets drop as era of cheap cash draws to a close

Asian markets mostly up as traders cheer Fed tilt to fight inflation

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Hong Kong: Most Asian markets rose on Thursday, while the U.S. dollar kept rising. Prior to this, the Federal Reserve adopted a faster pace of reducing its pandemic financial support and stated that it would raise interest rates several times in the next few years, thus charting a tougher path.

Although the highly anticipated decision marks the end of the era of ultra-loose monetary policy, investors cheered the U.S. central bank’s plan to overcome months-long inflation spikes, which many feared could threaten economic recovery.

Policymakers stated that they will end the bond purchase program in March, thereby starting to increase borrowing costs. A closely watched indicator of possible interest rate changes suggests that they may raise interest rates six times before the end of 2023.

The announcement, which met expectations, helped soothe concerns on trading floors that officials were falling behind the curve and risked letting prices run out of control, with some warning of stagflation where economic growth stalls.

It also comes as consumer inflation sits at a four-decade high.

Fed boss Jerome Powell said that while prices would likely continue rising next year, he remained upbeat about the world’s top economy.

“Economic activity is on track to expand at a robust pace this year, reflecting progress on vaccinations and the reopening of the economy. Aggregate demand remains very strong,” Powell told reporters following the two-day policy meeting.

Powell admitted recently that he and his colleagues miscalculated how far prices would rebound in the wake of the pandemic crisis.

“It would seem that today’s decision was a first move by the Fed to restore its credibility as an inflation-managing institution,” said Christian Scherrmann, of asset manager DWS.

“But its more hawkish announcement was also justified by more optimism that progress towards maximum employment has picked up.”

After the announcement of the decision, all three major Wall Street indexes rose, and analysts said this eliminated a lot of uncertainty among investors.

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