Most Asian stocks rose Thursday, tracking gains on Wall Street after the Federal Reserve left interest rates unchanged and forecast it will raise rates more gradually than it had envisioned previous year.
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Fed officials pulled back their expectations on rate increases in 2016 by about a half percentage point, seeing the benchmark federal funds rate at about 0.9 percent by the end of the year, implying two rate hikes.
Yellen said slow growth in overseas economies poses some risks to the USA economy, making it “prudent” to continue low interest rates. Offsetting the threats, the Fed said in a statement after a policy meeting that it foresees a further strengthening in the USA job market.
The Fed kept the target range for the benchmark rate at 0.25 percent to 0.5 percent, according to a statement Wednesday following a two-day meeting. It also expects inflation, which has stayed persistently low, to reach the Fed’s 2 percent target in two to three years.
BONDS, CURRENCIES: Bond prices fell and the yield on the 10-year Treasury note rose to 1.98 percent from 1.97 percent.
Asian shares gained early and the dollar was on the defensive after suffering substantial losses following the Fed’s move to reduce the number of interest rate hikes planned for this year.
“There isn’t enough time for them to see enough convincing data and do sufficient jawboning to prep markets for a rate hike”, said Greg McBride, chief financial analyst at Bankrate.com. Consumer prices edged down 0.2 percent last month after no change in January and a small decline in December, the labor department reported Wednesday. “The stance of monetary policy remains accommodative, thereby supporting further improvement in labor market conditions and a return to 2 percent inflation”.
Since raising its key rate from a record low in December, the Fed has held off on raising rates again. The S&P 500 gained 0.6 per cent to its highest point since December 31.
The Fed’s preferred measure of price inflation, the personal consumption expenditures index, rose 1.3% in January year-over-year, while core inflation increased 1.7%.
The statement seems consistent with market expectations that the next rate hike will come in June rather than April.
Hong Kong added one per cent in the afternoon and Shanghai put on 1.2 per cent, while Sydney ended up one per cent and Seoul was 0.7 per cent higher.
The U.S. market is quiet for a third day in a row but mostly higher Wednesday morning following a raft of generally positive economic reports.
The latest USA inflation data revealed a larger than expected gain. It’s the second straight monthly increase and a sign manufacturing is improving. France’s CAC 40 fell 0.1 percent. The index stood at 96.837 immediately prior to the statement, sliding almost 1.3 percent in the time between the statement’s release and the end of the Fed chair’s remarks.
Germany’s DAX gained 0.5 percent and Britain’s FTSE 100 added 0.6 percent.
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Japan’s Nikkei 225 index fell 0.2 per cent to 16,936.38, shedding substantial gains in the morning.
