Global inventories and crude oil fell after the Federal Reserve signaled that tighter monetary policy could come earlier than expected, with the US central bank forecasting significantly higher inflation this year.
Japan’s Topix index fell 0.6 percent and the Australian S&P/ASX 200 lost 0.3 percent in Asia-Pacific trading on Thursday. Futures for Wall Street’s S&P 500 index fell 0.3 percent, while those for the FTSE 100 in London fell 0.5 percent.
The weakness in stock markets came after the Fed held its key interest rate at 0 to 0.25 percent on Wednesday. But the consensus among Fed officials shifted to a rate hike in 2023, pushed forward at the earliest from an earlier 2024 forecast.
Core inflation is expected to be 3 percent this year, well above the 2.2 percent expected in March, according to Fed estimates.
Treasury yields, which rise as prices fall, stabilized after a jump in the wake of the Fed’s announcement. Yields on 10-year US Treasuries remained stable at 1.579 percent in Asian trading, after rising nearly 0.1 percentage point in the previous session. The S&P 500 closed 0.5 percent lower on Wednesday.
Jay Powell, Fed Chair, said there was “every reason to think we will be in a labor market with very attractive numbers, with low unemployment, high participation and rising wages across the spectrum”.
The Federal Open Market Committee also maintained its asset purchase program, introduced last year to cushion the economic blow of Covid-19, unchanged at $120 billion a month. Powell said the process to finalize the program would be “orderly, methodical and transparent”, adding that any changes would be flagged “well in advance”.
“We don’t think the program phasing will cause any tangible stress to the economy or markets,” said Rick Rieder, chief investment officer, Global Fixed Income at BlackRock. “The biggest risk today would be an overheating paradigm where it’s hard to predict how high input or labor costs could get.”
Stocks in China, where higher interest rates have driven inflows from global investors seeking better returns, shrugged their shoulders at the Fed’s announcement. The CSI 300 index of Shanghai and Shenzhen-listed stocks rose 0.3 percent after data showed prices of new homes across the country rose steadily in May. The Hang Seng index in Hong Kong had changed little.
Expectations of tighter policies also weighed on oil prices, with Brent crude, the international benchmark, falling 0.4 percent to $74.12 a barrel. US marker West Texas Intermediate fell similarly to $71.86 a barrel.