Asian equities mostly advanced on Thursday, buoyed by comments from US Federal Reserve Chair Jerome Powell that suggested any inflationary impact from tariffs would likely be short-lived. However, concerns linger as the Fed revised its growth outlook downward while raising its inflation projections.
Recent weeks have seen heightened market volatility, driven largely by US President Donald Trump’s aggressive trade policies. His administration has imposed steep tariffs on key trade partners, fueling fears of a potential recession.
Additionally, analysts warn that Trump’s broader economic policies—including tax cuts, deregulation, and immigration restrictions—could accelerate inflation and prompt the Fed to reconsider its monetary stance.
Following its highly anticipated meeting on Wednesday, the Federal Reserve opted to maintain interest rates for the second consecutive time.
However, it acknowledged growing uncertainty in the economic landscape. The Fed downgraded its US growth forecast for 2025 to 1.7% from the previously estimated 2.1% while raising its core inflation outlook from 2.5% to 2.8%.
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Despite these concerns, the central bank’s dot plot still indicates the likelihood of two rate cuts this year. Powell reassured investors, stating, “Sentiment has fallen sharply, but economic activity has not yet. We are watching carefully.“
He acknowledged that inflation was beginning to climb, partly due to tariffs, but described the effect as “transitory.” Still, he cautioned that it remains difficult to determine the precise impact of trade policies on inflation.
Powell’s remarks were largely viewed as market-friendly, leading to a drop in 10-year US Treasury yields, which serve as a key indicator of monetary policy expectations.
The Fed also announced plans to slow its balance sheet reduction—a shift from its aggressive bond-selling strategy aimed at normalizing policy after the stimulus-driven pandemic response.
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Following the Fed’s statements, all three major Wall Street indices surged, lifting investor sentiment across Asian markets. Sydney, Seoul, Singapore, Taipei, Wellington, and Manila all posted gains. Jakarta’s benchmark index jumped nearly 2%, extending its rally from the previous session, though it remains down 10% year-to-date amid economic concerns in Indonesia.
On the flip side, Hong Kong’s Hang Seng Index retreated after an extraordinary rally this year, which has seen it climb over 20%. Shanghai also edged lower. Tokyo’s markets were closed for a holiday.
The yen continued its ascent after Powell’s dovish remarks, while the US dollar softened against both the pound and the euro. Meanwhile, safe-haven gold soared to a new record high above $3,056 per ounce, reflecting ongoing geopolitical uncertainty.
Oil prices pushed higher once again as tensions flared in the Middle East. Israel launched its most intense strikes on Gaza since a ceasefire agreement with Hamas took effect, stoking fears of further instability in the region.
In Eastern Europe, global attention turned to Ukraine after Trump proposed that the US could oversee and operate Ukraine’s nuclear power plants as part of a ceasefire deal with Russia.
Ukrainian President Volodymyr Zelensky signaled willingness to pause attacks on Russian energy infrastructure, following Russian President Vladimir Putin’s agreement to halt similar strikes on Ukraine.
Despite some reassurances from the Fed, uncertainty remains the prevailing theme. Kerry Craig, global market strategist at JP Morgan Asset Management, summed up the situation, stating, “The Fed doesn’t have all the answers but faces plenty of questions about how it interprets shifts in the US economy and policy impacts. For now, the market seems reassured that the Fed is ready to act if needed.” However, he warned that “the overall outlook remains uncertain.”
Investors will continue to monitor central bank policies, trade developments, and geopolitical risks, all of which will play a crucial role in shaping market sentiment in the weeks ahead.
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