HONG KONG: Asian shares rose on Thursday after Federal Reserve Chairman Jerome Powell said the bank would gradually raise interest rates to fight inflation, even as oil prices rose as the conflict in Ukraine continued to roil energy markets.
With uncertainty paramount and Russia’s invasion of its neighbors hitting all assets across the board, traders were given much-needed light on Wednesday when the Fed chair eased concerns about his plans to tighten policy.
Powell told lawmakers he was in favour of a moderate pace of rate increases, with a 25-basis-point lift this month, as he tries to nurture the economic recovery while keeping a lid on prices, which are rising at their fastest pace in 40 years.
He warned that the “near-term effects on the US economy of the invasion of Ukraine, the ongoing war, the sanctions, and of events to come, remain highly uncertain”.
The comments soothed concerns that officials could announce an aggressive 50-basis-point lift. The issue of Fed tightening has cast a pall over markets for months, bringing a near two-year rally to an abrupt end, and that has now been compounded by the Ukraine crisis.
Powell did, however, say the bank would remain “nimble” to events and would act more aggressively if needed down the line.
Meanwhile, St. Louis Fed President James Bullard said he supported a “quick exit from policy easing” and Chicago President Charles Evans added that policy was “faltering” and should be tightened.
Still, Powell’s comments were able to “pacify risk markets by ruling out a 50-basis-point rate hike in March, while committing to a subsequent meeting,” said Citigroup strategists William O’Donnell and Edward Acton. Stay vigilant about inflation.”
Wall Street ended sharply higher, with all three major indexes up more than 1%.
Asia followed, with Tokyo, Hong Kong, Shanghai, Sydney, Seoul and Singapore leading gains.
But analysts have warned of further volatility for some time as the war in Ukraine continues to rage.
While the war is causing treasurers to reconsider their plans, the central bank appears intent on keeping policy tight for now, with the Bank of Canada raising interest rates on Wednesday.
The major source of angst for policy-setters is the spike in oil prices, which has been a key driver of inflation this year owing to narrow supplies and soaring demand and is now being amplified by the conflict in Europe.
On Thursday Brent continued to storm higher, hitting $118 a barrel for the first time since early 2013.
While world governments have not included Russian oil in their wide-ranging sanctions on Moscow owing to concerns about the impact on prices and consumers, trade has become increasingly tough as banks pull financing and shipping costs rise.
OPEC and other major producers, including Russia, refused Wednesday to lift output by more than their previously agreed amount, dealing a blow to hopes of an easing in supply pressures.
An agreement by the United States and 29 other countries to release 60 million barrels from their reserves has had little impact on the relentless rise in prices.
Other commodities are also elevated with European natural gas benchmarks and aluminium at records.