Most stocks rise as Fed hikes rates, signals drive to curb inflation

Asian investors welcomed the Federal Reserve’s 25-basis-point interest rate increase on Thursday, viewing it as a sign of the central bank’s resolve to combat inflation. The decision marked the first hike in three years and reinforced confidence in the Fed's credibility. Fed Governor Kevin Warsh voiced a more hawkish tone, suggesting the likelihood of another rate hike before the year's end.

The move was driven by concerns over surging inflation, which has been too high for too long, according to Warsh. Despite President Trump's push for rate cuts, the Fed unanimously approved the increase, emphasizing the need for more consistent financial and credit conditions.

The hike lifted investor sentiment, particularly in Asia, where most equities rose. Traders now see a 50:50 chance of an October rate hike, with the decision backed by a majority of Fed policymakers. Long-term government bond yields fell as investors reduced their inflation expectations, which currently stand at 3.4%, well above the Fed's 2% target. The decision helped remove the immediate question of the central bank's credibility, opening the door for further tightening.

However, not all markets reacted positively. Hong Kong and Shanghai saw declines, though other Asian markets, including Tokyo, Seoul, Singapore, Taipei, Wellington, and Jakarta, advanced. While some analysts see a catalyst for an equity bull market (lower interest rates) as unlikely, the Fed hike and Warsh’s remarks pushed the dollar higher, providing some relief amid Middle East tensions and high oil prices.

The Fed’s decision sets the stage for upcoming policy decisions by central banks in Britain and Japan, with Japan also expected to raise rates to counter inflation and a weaker yen.