Asian Shares Fall Sharply After Hawkish Fed’s Powell Comments, Suggest Further Rate Hikes

Stocks in Asia dropped sharply on Wednesday as Federal Reserve Chair Jerome Powell said, in hawkish comments made overnight, that interest rates may need to be higher than expected in order to combat high inflation.

The Hang Seng index in Hong Kong was down 2.13% as of 9.30 a.m. (Thai time), with losses mainly in the consumer cyclicals, healthcare, and basic materials sectors. The Shanghai Composite Index in Mainland China was down 0.26%.

Australia’s S&P/ASX 200 fell 0.99% as traders reacted to Reserve Bank of Australia governor Philip Lowe’s speech following the bank’s 25 basis point increase the day before.

The Nikkei 225 in Japan rose 0.24% while the Kospi in South Korea declined 1.06%.

U.S. stock markets fell sharply overnight after Powell said the Federal Reserve was “prepared to increase the pace of rate hikes” if the strength of recent economic data warranted it.

The Dow Jones Industrial Average finished the day down 574.98 points, or 1.72%, at 32,856.46. With a loss of 1.53%, the S&P 500 ended the day at 3,986.37, below the 4,000 mark. The Nasdaq Composite fell 1.25% to 11,530.33.

Powell told Congress on the first day of his semi-annual, two-day monetary policy testimony before Congress that the Fed will likely need to hike interest rates more than planned in reaction to recent strong data.

“The latest economic data have come in stronger than expected, which suggests that the ultimate level of interest rates is likely to be higher than previously anticipated,” Powell said in remarks to the Senate Banking, Housing and Urban Affairs Committee Tuesday morning. “If the totality of the data were to indicate that faster tightening is warranted, we would be prepared to increase the pace of rate hikes.”

Their remarks suggested that the Fed may consider a rate hike of more than 25 basis points at its upcoming March 21-22 policy meeting.

According to Morgan Stanley, they also hinted at a return to a half-point rate hike at the March meeting of the central bank, though this would rely on the strength of incoming economic data.