Asian stocks drop after Fed warning, oil dips with Mideast in focus
A person looks at an electronic stock board showing Japan’s Nikkei 225 index at a securities firm in Tokyo. (AP Photo/Eugene Hoshiko, File)
HONG KONG, China — Asian stocks fell Thursday after the Federal Reserve warned Donald Trump’s trade war would likely reignite US inflation and dampen economic growth. Meanwhile, oil prices edged down as investors awaited developments in the Israel-Iran conflict.
While geopolitical tensions are the key focus for markets, traders were also watching the US central bank’s latest meeting Wednesday. Officials gathered to discuss monetary policy in light of the president’s tariff blitz.
The Fed kept borrowing rates on hold for a fourth consecutive meeting, as expected. It said in a statement that “uncertainty about the economic outlook has diminished but remains elevated.”
The central bank later cut its economic growth forecast for this year and raised inflation and unemployment expectations. This was its first updated projections since Trump unveiled his levies on most trading partners at the start of April.
Boss Jerome Powell called the economy “still solid.” But he added that “increases in tariffs this year are likely to push up prices and weigh on economic activity.”
He said the bank was “well-positioned to wait to learn more” before considering changes to rates. Still, the Fed’s so-called dot-plot chart predicted two cuts this year.
“Ultimately, the cost of the tariff has to be paid and some of it will fall on the end consumer,” he added. “We know that’s coming and we just want to see a little bit of that before we make judgements prematurely.”
With Trump increasingly calling for the bank to slash rates, Powell said: “We’ll make smarter and better decisions if we just wait a couple of months.”
Asian stocks sensitive to headlines
Hours before the decision, the president said: “We have a stupid person, frankly, at the Fed.”
Speaking at the White House, he added: “We have no inflation, we have only success, and I’d like to see interest rates get down. Maybe I should go to the Fed. Am I allowed to appoint myself?”
READ: US Fed keeps interest rates unchanged in face of Trump criticism
“The Fed’s assessment indicates that the economy is in good shape, aligning with current economic data,” said Tai Hui at JP Morgan Asset Management.
“However, trade policy, fiscal policy, and unintended consequences of policies from the Trump administration are contributing to market volatility in the second half of this year.”
After a tepid day on Wall Street, Asian markets turned lower.
Hong Kong led losses, falling more than one percent. Meanwhile, Tokyo, Shanghai, Sydney, Singapore, Seoul, Wellington, Taipei, Manila and Jakarta were also in the red.
The Fed comments compounded the already weak sentiment on trading floors as Trump considers whether to join Israeli strikes against Iran.
Saber-rattling Trump rattles Asian stocks
He indicated he was still looking into such a move and that Iran had reached out seeking negotiations. He said: “I may do it, I may not do it. I mean, nobody knows what I’m going to do.”
Without providing more details, he added: “The next week is going to be very big.”
READ: Khamenei says Iran will ‘never surrender’, warns off US
Iran’s supreme leader Ayatollah Ali Khamenei earlier sounded a defiant note, rejecting Trump’s call for “unconditional surrender.”
Still, with no concrete signs of escalation, oil prices edged down after another volatile day on Wednesday.
Analysts said the main worry for traders was the possibility Tehran will shut a key shipping lane through which an estimated fifth of global oil supply flows.
“We don’t see it as a likely scenario at this time. But given the precarious state that the Iran regime is in right now, I think everybody should be watching” the Strait of Hormuz, Mike Sommers, president of the American Petroleum Institute, told Bloomberg television in an interview.
