Asian stocks rise after US Fed sees inflation improving

ASIAN stock markets gained Thursday, Feb. 2, 2023, after the Federal Reserve (Fed) said the US economy is moving toward lower inflation but more interest rate hikes are planned.

Shanghai, Tokyo, Hong Kong and Sydney advanced. Oil prices rose.

Wall Street’s benchmark S&P 500 index closed one percent higher after the Fed raised its key lending rate by 0.25 percentage points, smaller than previous hikes.

Chair Jerome Powell said the “disinflationary process has started” but “ongoing increases” in rates will be needed.

Traders hope central banks that raised rates repeatedly over the past year will be encouraged to scale back plans for more hikes as inflation eases. Some expect a US cut before 2024, though Powell said he anticipates no reductions this year.

Markets put a “dovish interpretation” on Powell’s comments despite his comment that it was too early to declare victory, Venkateswaran Lavanya of Mizuho Bank said in a report.

The gap between market pricing and Fed plans “appears to have widened,” Lavanya wrote. “This leaves room for a rude shock down the road.”

The Shanghai Composite Index gained 0.3 percent to 3,284.50 and the Nikkei 225 in Tokyo added 0.1 percent to 27,374.60. The Hang Seng in Hong Kong advanced 0.5 percent to 22,188.20.

The Kospi in Seoul was 0.7 percent higher at 2,466.03 and Sydney’s S&P-ASX 200 rose 0.2 percent to 7,514.20.

India’s Sensex opened down 0.3 percent at 59,544.52. New Zealand, Bangkok and Jakarta advanced while Singapore and Kuala Lumpur declined.

Following Powell’s news conference, the S&P recovered Wednesday from an early loss to rise to 4,119.21, its highest close since August.

“We can now say, I think for the first time, that the disinflationary process has started,” Powell said. He said his “base case” is that the Fed’s inflation target of two percent can be achieved “without a really significant downturn or really big increase in unemployment.”

That appeared to encourage investors who worry central banks might be willing to push the global economy into recession to cool inflation that is near multi-decade highs.

The Dow Jones Industrial Average gained less than 0.1 percent to 34,092.96. The Nasdaq composite jumped two percent to 11,816.32.

Wednesday’s announcement raised the Fed’s overnight lending rate to a 16-year high of 4.5 percent to 4.75 percent, up from close to zero early last year.(AP)