TOKYO — Asian benchmarks were mostly higher on Thursday after US shares rose to record highs following indications from the Federal Reserve that it expects interest rate cuts later this year.
Japan’s benchmark Nikkei 225 rose 2.0% to close at a record high of 40,815.66 after the government reported exports grew nearly 8% in February from a year earlier, in the third consecutive month of increases .
Deliveries of cars and electrical machinery are increasing, reducing the trade deficit to about half of what it was a year earlier, at 379 billion yen ($2.5 billion).
Hong Kong’s benchmark also rose 2% to 16,879.68, while the Shanghai Composite fell less than 0.1% to 3,077.11, after the Chinese government announced new measures to support the economy.
Sydney’s S&P/ASX 200 added 1.1% to 7,782.00. South Korea’s Kospi gained 2.4% to 2,754.86.
On Wednesday the S&The P500 rose 0.9% to 5,224.62, hitting a record high for the second straight day. So far this year, the economy is already up 9.5%, which is slightly better than the full-year average over the past two decades.
The Dow Jones Industrial Average rose 1% to 39,512.13 and the Nasdaq composite rose 1.3% higher to 16,369.41. Both also set records.
Some of the nervousness on Wall Street that started the day dissipated after the Fed released a survey of its policymakers showing that the median still expects the central bank to make three interest rate cuts in 2024. That’s the same number as they recorded. three months earlier, and expectations of the relief such cuts would provide are a major reason why U.S. stock prices have set records.
The fear on Wall Street was that the Fed could scale back the number of forecast cuts due to a series of recent reports showing inflation remained higher than expected. The Fed has kept its key interest rate at the highest level since 2001 to reduce inflation. High interest rates slow down the economy as a whole by making borrowing more expensive and affecting investment prices.
Fed Chairman Jerome Powell said he had noted the worse-than-expected reports over the past two months, but that they “haven’t really changed the overall story, which is that inflation is gradually falling on a sometimes bumpy path to 2%. That story has not changed.”
Powell said again that the Fed’s next step will likely be a cut sometime this year, but that more confirmation is needed that inflation is moving toward its 2% target.
The Fed has dangerously little room for error. Cutting rates too early risks inflation accelerating again, but cutting rates too late could lead to widespread job losses and a recession.
“I don’t think we really know if this is a bump in the road or something more; we’ll have to figure it out,” Powell said of the January and February inflation data. “In the meantime, the economy is strong, the labor market is strong and inflation has fallen significantly, and that gives us the opportunity to approach this issue carefully.”
Fed officials have upgraded their forecasts for U.S. economic growth this year, while also signaling they may keep benchmark interest rates higher in 2025 and 2026 than previously thought.
In the bond market, government bond yields reacted mixed.
Two-year Treasury yields, closely in line with expectations for Fed action, initially rose but quickly gave up gains. Ultimately, yields fell to 4.61%, down from 4.69% late Tuesday, as traders built bets for the Federal Reserve to start cutting rates in June.
Traders had already given up on earlier hopes that the Fed would start cutting spending in March. The concern is that if the Fed waits too long into the summer, a rate cut could appear politically motivated if it comes just before the US elections in November.
Ten-year Treasury yields, which also take longer-term economic growth and inflation into account, initially plummeted after the Fed’s announcement but then reversed. It later stood at 4.28%, compared to 4.30% late Tuesday.
In other trading, U.S. crude rose 41 cents to $81.68 a barrel. Brent crude, the international standard, added 50 cents to $86.45 a barrel.
The US dollar fell from 151.26 yen to 150.96 Japanese yen. The euro cost $1.0935, up from $1.0925.
