Asian Markets Fluctuate After Fed Cuts Interest Rates
The Federal Reserve’s decision to lower interest rates by 25 basis points has left Asian markets wavering, as investors speculate about the potential for further cuts. The move, announced on Thursday, marks the first reduction in interest rates since December, driven by concerns over a slowing jobs market. Despite inflation running above the Fed’s 2% target, the central bank’s focus on employment has taken center stage.
The Fed’s post-meeting statement noted that “downside risks to employment have risen” and inflation remains “somewhat elevated.” Chairman Jerome Powell emphasized that labor demand has softened, with job creation below the rate needed to maintain a stable unemployment rate. The pass-through of tariffs to consumers has been slower than expected, Powell added.
The closely watched forecast for future rates revealed a divide among officials, with a narrow majority predicting two more cuts and seven expecting none. Powell adopted a cautious approach, stating that decisions would be made on a meeting-by-meeting basis. Michael Pearce of Oxford Economics described the outlook as “unusual” and “starkly divided,” suggesting that the next move could depend on upcoming jobs figures.
US markets reacted tepidly to the news, with the Dow rising while the S&P 500 and Nasdaq fell. Asian investors were also cautious, with Tokyo’s Nikkei 225 index rising 1.1% and Hong Kong’s Hang Seng Index dropping 0.4%. Other markets, including Seoul, Taipei, and Jakarta, saw gains, while Sydney, Singapore, Wellington, and Manila experienced losses.
Economists at Bank of America noted that investors had been expecting a more decisive stance from Powell on the employment mandate. They predicted a single additional rate cut in December, although the risk of an earlier move in October has increased. Jack McIntyre at Brandywine Global emphasized the Fed’s growing focus on the softening labor market, which could lead to more rate cuts as monetary policy works with a lag.
Gold prices held steady at around $3,660, having spiked to a record high above $3,707 on Wednesday. In company news, Australian energy group Santos plummeted nearly 12% after a consortium led by Abu Dhabi National Oil Company retracted a takeover bid.
The Fed’s decision has significant implications for global markets, with the potential for further volatility in the coming year. As investors continue to speculate about the central bank’s next move, the focus will remain on the labor market and its impact on inflation. With the current economic landscape in flux, market participants will be closely watching upcoming data releases and Fed announcements for clues on the path forward.
