Stocks retreat, US yields advance, dollar strengthens on hawkish Fed

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The higher-for-longer projection suggests tighter monetary policy in 2024 than previously expected.

The US Federal Reserve expects relatively modest policy rate reductions even if inflation falls in 2023 and in coming years.

MSCI’s broadest index of Asia-Pacific shares outside Japan was down 0.6%, with the Hong Kong benchmark shedding 0.8%. Japan’s Nikkei fell 1%.“People were picking and choosing what they wanted to look at which was obviously more on the negative side, so I think sentiment today would lean more towards the red end,” said Ben Luk, senior multi-asset strategist at State Street Global Markets.

Forecasts for 2024 were slightly higher than generally expected and Fed statements implied the view that macroeconomic growth would hold up even if with rates staying higher for longer, Luk said. Upward revisions to US policymakers’ median rate forecasts for the next couple of years triggered a rebound in the US dollar, pushed US Treasury yields to multi-year highs, flattened the yield curve and sent stocks tumbling.

 

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