Asian stocks slide after Fed’s inflation warning

Synopsis

Asian equities experienced a dip following Jerome Powell's inflation outlook. The Fed held rates steady, signaling two potential cuts this year, but tariff-driven uncertainty complicates policy easing. Powell highlighted that tariffs are likely to boost prices, impacting consumers. Markets await further details on the global economy and geopolitical tensions.

Asian equities dipped on Thursday after Federal Reserve Chair Jerome Powell said he expected inflation to pickup meaningfully in the coming months.

MSCI’s regional gauge of shares was down 0.3%, as markets in Japan and Australia opened lower. US equity futures fell about 0.3% after the S&P 500 Index closed steady in the previous session. The dollar was little changed, and cash trading in Treasuries is closed Thursday for a US holiday.

The Fed left rates unchanged in its Wednesday meeting and indicated it still sees two further cuts this year. Yet Powell said tariff-driven economic uncertainty and inflation risk continued to complicate the central bank’s bid to ease policy. Oil steadied as the Trump administration offered few clues about whether the US will join Israel’s offensive aimed at destroying Tehran’s nuclear program.

The broadly muted moves indicated a lack of direction across global markets as investors awaited further details on the global economy, US inflation and the prospect of heightened tension in the Middle East.

“The Fed’s assessment indicates that the economy is in good shape, aligning with current economic data,” said Tai Hui, APAC chief market strategist for JP Morgan Asset Management. “However, trade policy, fiscal policy, and unintended consequences of policies from the Trump administration” are contributing to market volatility this year, he added.

Powell noted that increases in tariffs are likely to boost prices, while adding that the effects on inflation could be more persistent. He also declined to say if he’ll stay on after his term ends.

“Ultimately, the cost of the tariff has to be paid and some of it will fall on the end consumer,” Powell said. “We know that’s coming and we just want to see a little bit of that before we make judgments prematurely,” he added.

The Fed’s decision to hold rates steady – coupled with Powell’s latest warning on tariffs – underscores the delicate balance facing policymakers guiding the economy toward continued expansion. While officials continued to pencil in two rate cuts in 2025, they downgraded their estimates for growth this year while lifting forecasts for unemployment and inflation.

“Powell played it safe,” said Haris Khurshid, chief investment officer at Karobaar Capital in Chicago. “They’re sticking to two cuts for now, but clearly rattled by tariffs. No urgency to move. It’s a tough spot: growth slowing, inflation lingering, and geopolitical risk heating up.”

While the median expectation for two rate cuts in 2025 didn’t change, a number of officials lowered their projections. Seven officials now foresee no rate cuts this year, compared with four in March. Two others pointed to one cut this year.

The New Zealand dollar was stable Thursday after gross-domestic product data was slightly stronger than consensus expectations. Australian and New Zealand bond yields were little changed. The yen strengthened 0.2% against the greenback.

Elsewhere in Asia, data set for release employment in Australia and rate decisions in Taiwan and the Philippines. Thailand faces fresh political uncertainty after the second-largest party in Prime Minister Paetongtarn Shinawatra’s government quit the ruling coalition.

Later Thursday the central banks of Switzerland, Norway, Turkey and the UK will also hand down rate decisions.

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