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World stocks and crude fell after the Federal Reserve indicated that tighter monetary policy could arrive earlier than expected, and the U.S. central bank forecast significantly higher inflation this year.
Japan’s Topix index fell 0.6% and Australia’s S & P / ASX 200 fell 0.3% in Asia-Pacific trading on Thursday. Wall Street S&P 500 futures fell 0.3%, while London’s FTSE 100 fell 0.5%.
Weakness in equity markets came after the Fed kept its main interest rate on hold between 0 and 0.25% on Wednesday. But the consensus among Fed officials shifted toward rate increases in 2023, advanced from a previous forecast of 2024 at the earliest.
Core inflation is expected to be 3% this year, well above the 2.2% forecast in March, according to estimates by Fed officials.
US Treasury yields, which rise as prices fall, stabilized after jumping following the Fed announcement. Ten-year U.S. Treasury yields held at 1.579 percent in Asian trade after rising nearly 0.1 percentage points in the previous session. The S&P 500 closed 0.5% below Wednesday.
Fed Chairman Jay Powell said there was “every reason to think we will be in a labor market with a very attractive number, 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 allowed. Powell said the program’s liquidation process would be “orderly, methodical and transparent,” adding that the changes would be noted “well in advance.”
“We don’t believe that reducing the program will generate tangible stress for the economy or markets,” said Rick Rieder, BlackRock’s global fixed income investment director. “The biggest risk today would be an overheating paradigm in which it is difficult to predict how high input or wage costs could be.”
Stocks in China, where there are higher interest rates driven inputs of global investors looking for better returns, set aside the Fed’s announcement. The CSI 300 index of listed shares in Shanghai and Shenzhen rose 0.3% after data showed prices for new homes across the country rose steadily in May. Hong Kong’s Hang Seng index changed little.
Expectations for a tighter policy also affected oil prices, with Brent crude, the international benchmark, falling 0.4% to $ 74.12 a barrel. The US West Texas Intermediate fell to the same level to $ 71.86 a barrel.
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