SINGAPORE- Asian shares made a tentative start to Thursday after Federal Reserve chair Jerome Powell stuck to his recent hawkish tone as investors assess the future rate policy path from the Fed.
MSCI’s broadest index of Asia-Pacific shares outside Japan was marginally lower at 522.93. The index is down over 2 percent for the week and set to snap its three week winning run.
Australia’s S&P/ASX 200 index lost 1.17 percent, while Japan’s Nikkei eased 0.25 percent. China and Hong Kong stock markets are closed for a holiday.
Last week, the Fed held its benchmark interest rate steady at level between 5 percent and 5.25 percent, but officials projected rates will have to increase another half percentage point by year’s end to tame inflation.
Markets though remain unconvinced, pricing in a 25 basis point hike next month, according to CME FedWatch tool, and no more after that.
Powell in his remarks to lawmakers in Washington said the outlook for two further 25 basis point rate increases are “a pretty good guess” of where the central bank is heading if the economy continues in its current direction.
While his remarks were eagerly awaited by investors, they offered no real surprise.
Kevin Cummins, chief economist at NatWest Markets, said Powell’s testimony didn’t shed any new light on the Fed’s thinking or the likely future path for monetary policy, adding that his tone was very similar to last week’s press conference and mostly leaned hawkish.
“It’s clear that the FOMC wants the market to understand that a hike will be on the table for debate at the next meeting. The Fed’s data-dependent approach in this tightening cycle suggests upcoming data releases could shift expectations.”
Atlanta Federal Reserve President Raphael Bostic said on Wednesday the Fed should not raise rates further or it would risk “needlessly” sapping the strength of the US economy.
The comments highlight the growing debate at the central bank over when and if the central bank should hike further.
Investor attention will be on Bank of England later in the day, with a hike widely expected and the only contention is how big the raise will be after inflation data came in hotter than expected on Wednesday.
