Asian investors welcomed dovish comments from Federal Reserve officials on Tuesday, boosting hopes for a potential interest rate cut next month. The remarks, which highlighted concerns over the labor market and inflation, have increased the likelihood of a third consecutive reduction in US borrowing costs. According to analysts, the chances of a rate cut have risen to around 90%, up from 35% last week.

Federal Reserve Governor Christopher Waller expressed his concerns about the labor market, stating that it is his primary focus, rather than inflation. He advocated for a rate cut at the next meeting, echoing similar sentiments from San Francisco Fed President Mary Daly. Daly noted that the risk of higher inflation is lower due to the limited impact of US President Donald Trump’s tariffs.

The prospect of lower borrowing rates has pushed Wall Street higher, with the S&P 500 rising 1.6% and the Nasdaq surging 2.7% on Monday. The gains have continued in Asia, with markets in Hong Kong, Shanghai, and Seoul experiencing significant increases. Tech firms, in particular, have enjoyed a revival after a period of selling due to concerns over valuations and the potential for a bubble in the AI sector.

While there is debate about the sustainability of the advance, observers believe that the outlook is more nuanced. Charu Chanana of Saxo Markets noted that AI remains a powerful force in reshaping markets, but the tone is changing. She emphasized the need for investors to separate durable players from those caught up in the momentum and to focus on fundamentals over narratives.

The positive sentiment was also boosted by a phone call between President Trump and his Chinese counterpart, Xi Jinping, in which they discussed strong US-China relations. Trump announced plans to visit China in April and invited Xi to Washington in 2026. However, the sensitive issue of Taiwan was not mentioned, with China’s foreign ministry stating that Trump acknowledged the importance of the Taiwan question to China.

The developments have significant implications for global markets, with investors closely watching the Federal Reserve’s next move. As the odds of a rate cut grow, markets are likely to remain volatile, with investors seeking clarity on the outlook for interest rates and the potential impact on the global economy.