HONG KONG (AFP): Most Asian markets rose Wednesday but traders remained on edge after Federal Reserve boss Jerome Powell reiterated that inflation was coming down but interest rates might need to go higher than expected to get it under control.
A run of key data in recent months has indicated a series of bumper hikes last year was beginning to pay off, fuelling hopes that the central bank could pause its tightening cycle and even lower borrowing costs at the end of the year.
But a forecast-busting jobs report on Friday — showing half a million new jobs created in January — dealt traders a heavy blow and stoked speculation that more increases were on the way.
And on Tuesday, Powell confirmed those fears, telling The Economic Club of Washington, DC that he saw 2023 to be a year of “significant declines in inflation”, but it will only hit the Fed’s two percent target next year.
But he warned “we think we are going to need to do further rate increases”, adding that the “labour market is extraordinarily strong”.
“If the data were to continue to come in stronger than we expect, and we were to conclude that we needed to raise rates more… then we would certainly do that,” he said.
The remarks were echoed by Minneapolis Fed chief Neel Kashkari, who said rates might need to rise from the current 4.5-4.75 percent to 5.4 percent, higher than markets are currently pricing in.
Powell’s comments were also similar to what he said last Wednesday, after the bank’s latest policy meeting, which sparked an equities rally.
And Wall Street again pushed higher.
However, OANDA’s Edward Moya said: “It will probably go down as a missed opportunity as (Powell) could have pushed back on what the market is pricing in.
“Rate cut bets for next winter firmly remain intact and that should be an issue for a Fed trying to get inflation somewhere near target.” Eyes are now on the latest inflation report due next Tuesday.
“Peak rate expectations will likely be determined next week and as long as we don’t have a scorching inflation report, appetite for risky assets should hold up,” Moya added.
In early trade, Sydney, Seoul, Singapore, Wellington, Taipei, Manila and Jakarta all rose but Hong Kong, Shanghai and Tokyo fell.
There was little early reaction to Joe Biden’s annual State of the Union address to Congress, where he said the United States was “better positioned than any country on Earth right now”.
He also said he would not allow the country to default on its debt and urged lawmakers to reach an agreement to raise the debt ceiling.
The dollar edged back up against its peers after dipping Tuesday, while oil stabilised after surging on fresh China demand bets as the country emerges from years of strict containment measures under zero-Covid.