Global stocks fall after Fed signals tightening monetary policy

Global stocks and crude oil fell after the Federal Reserve signaled that tightening monetary policy could come sooner than expected, with the US central bank forecasting significantly higher inflation this year.

Japan’s Topix index fell 0.6% and Australia’s S & P / ASX 200 lost 0.3% in Asia-Pacific trading on Thursday. Wall Street S&P 500 index futures fell 0.3%, while London’s FTSE 100 fell 0.5%.

The weakness in equity markets came after the Fed kept its main interest rate in the 0-0.25% range on Wednesday. But the consensus among Fed officials has shifted towards a rate hike in 2023, postponed compared to a previous forecast of 2024 at the earliest.

Core inflation is expected to be 3% this year, significantly higher than the 2.2% expected in March, according to estimates by Fed officials.

U.S. Treasury yields, which rise as prices fall, stabilized after jumping following the Fed’s announcement. Yields on 10-year US Treasuries were flat at 1.579 percent in Asian exchanges after rising nearly 0.1 percentage point in the previous session. The S&P 500 closed 0.5% lower on Wednesday.

Jay Powell, Chairman of the Fed, said there was “every reason to believe that we will be in a labor market with very attractive numbers, low unemployment, high participation and rising wages at all. levels”.

The Federal Open Market Committee also maintained its asset purchase program, introduced last year to cushion the economic blow from Covid-19, unchanged at $ 120 billion per month. Powell said the process of winding up the program would be “orderly, methodical and transparent,” adding that any changes would be reported “well in advance.”

“We don’t believe that the reduction in the program will create tangible stress on the economy or the markets,” said Rick Rieder, director of global fixed income investments at BlackRock. “The biggest risk today would be an overheating paradigm where it is difficult to predict how high the costs of inputs or wages could be. “

Stocks in China, where higher interest rates have incoming flows of global investors looking for better returns, ignored the Fed’s announcement. The CSI 300 index of stocks listed in Shanghai and Shenzhen rose 0.3% after data showed new home prices across the country rose steadily in May. Hong Kong’s Hang Seng Index was little changed.

Expectations of a stricter policy also weighed on oil prices, with Brent crude, the international benchmark, down 0.4% to $ 74.12 per barrel. The US marker West Texas Intermediate fell by the same degree to $ 71.86 a barrel.

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