SINGAPORE- Asian shares were subdued on Thursday and the dollar was on the defensive after US data showed progress in slowing inflation had stalled even as the economy remained resilient, raising doubt over the path the Federal Reserve could take next year.
With the US Thanksgiving holiday likely to keep trading thin for the rest of the week, traders remained hesitant in placing major bets.
MSCI’s broadest index of Asia-Pacific shares outside Japan was 0.07 percent lower, with Japan’s Nikkei up 0.46 percent.
Sentiment remained frail as investors pondered the possibility of a tariff war sparked by US President-elect Donald Trump’s policies.
Data on Wednesday showed US consumer spending increased slightly more than markets expected in October but progress on lowering the rate of inflation appears to have stalled in recent months.
The lack of success in bringing inflation back to the Fed’s 2 percent target, together with the prospect of higher tariffs on imported goods, could narrow the scope for interest rate cuts next year.
While the Fed is still widely expected to deliver a third rate reduction in December, minutes of the Federal Open Market Committee’s Nov. 6-7 policy meeting published on Tuesday showed officials appeared divided over how much farther they may need to cut rates.
“We continue to expect the FOMC to cut the Funds rate by 25 basis point at its December meeting,” said economist Kristina Clifton at the Commonwealth Bank of Australia.
“However, another solid monthly core inflation for November will challenge the FOMC’s view that inflation is trending down to 2 percent /year. Doubts around inflation converging sustainably to target would reduce market expectations for a December cut.”
Traders are pricing in 65 percent chance of the Fed cutting rates next month and are anticipating 75 basis points of easing by the end of 2025, LSEG data showed. Macquarie strategists said the inflation outlook has become cloudier, with the possibility of the implementation of tariff threats by the incoming Trump administration having the potential to create a renewal of upward pressure in core goods.
