Markets decline as Fed minutes point to interest rates remaining high for longer

The Federal Reserve

Asian markets drifted on Wednesday as traders tracked a tepid advance from Wall Street after meeting minutes showed Federal Reserve officials leaning toward keeping interest rates high “for some time” in order to stem inflation.

Traders took the opportunity to take stock of interest rates after a recent rise fueled by growing optimism that the central bank’s next move will likely be a cut in the new year.

The upbeat mood lifted stocks and saw US Treasury yields retreat from their highest levels in 17 years, which in turn pushed the dollar lower against other currencies.

Minutes from the Fed’s October-November monetary policy meeting showed that policymakers recognized the impact of raising interest rates for more than a year on inflation — which has fallen from a four-decade high seen last year — but were eager to make inflation more stable. Pretty sure they got the job done.

“All participants considered that it would be appropriate for policy to remain in a restrictive stance for some time until inflation moves clearly sustainably lower” toward its 2 percent target, the minutes published on Tuesday said.

Those comments — which echoed warnings from several policymakers, including Federal Reserve Chairman Jerome Powell — dampened some hope that the bank would cut interest rates in the new year, with some commentators anticipating such a move in March.

However, this has done little to raise fears of further rises on the way, as any increase in Treasury yields is seen as enough to tighten financial conditions.

“If we see stronger economic and inflation data before the December meeting, long-term interest rates will likely rebound and replace rate hikes. So we do not expect further hikes,” Rabobank’s Philippe Marey said.

There is a belief among many traders that the Fed has managed to steer the world’s number one economy into a soft landing by cooling growth without causing a recession.

All three major indexes on Wall Street finished in the red on Tuesday, with traders now pulling back ahead of the Thanksgiving holiday.

However, US markets have enjoyed a healthy rally recently: the S&P 500 is up about 10 percent in the past month, while the Nasdaq has gained more than 12 percent.

Asian stock prices fluctuated on Wednesday, with Hong Kong shifting in and out of positive territory, while shares in Shanghai, Sydney, Seoul, Wellington, Taipei and Jakarta fell.

Tokyo and Manila rose. Singapore also rose slightly as data showed the city-state’s economy expanded more than expected in the third quarter.

The dollar remained under pressure as investors accepted the idea that interest rates would not rise any further, while the yen also received support against the dollar from bets that the Bank of Japan would shift away from its ultra-loose policy.

– Key figures around 0230 GMT –

Tokyo – Nikkei 225: up 0.6 percent to 33,560.01 (break)

Hong Kong – Hang Seng Index: down 0.1% to 17,709.24

Shanghai – Composite: Decreased by 0.2 percent to 3,062.85

USD/JPY: Decreased to 148.31 yen from 148.33 yen on Tuesday

EUR/USD: rose to $1.0915 from $1.0913

GBP/USD: fell to $1.2535 from $1.2537

EUR/Pound: rose to 87.05 pence from 87.02 pence

West Texas Intermediate crude: fell 0.1% to $77.67 per barrel

Brent North Sea crude fell 0.2 percent to $82.33 a barrel

New York – Dow Jones: down 0.2% to 35,088.29 (close)

London – FTSE 100: down 0.2 percent to 7,481.99 (close)


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