The Federal Reserve raised a key interest rate, but noting the end may be near for its hikes in interest rates, Asian shares were mixed Thursday.
The Fed raised its key overnight rate by a quarter of a percentage point, the same as it did last year, in its effort to drive down inflation. The effort has been complicated by the turmoil in the banking sector, with investors worried that more banks might fail after Silicon Valley Bank collapsed.
Japan's benchmark Nikkei 225 lost 0.2% to 27,419. Australia's S&P ASX 200 fell 0.7% to 6,968. South Korea's Kospi increased by 0.3% to 2,424. Hong Kong's Hang Seng gained 1.7% to 19,923. Shares in India and Taiwan went up.
A risk-off tone following the recent Fed meeting has set the stage for the Asian region to follow through with some losses, according to Yeap Jun Rong, a market analyst at IG.
The S&P 500 fell 1.6% on Wall Street in its first drop in three days. The Dow Jones Industrial Average lost 1.6% to 32,030. The Nasdaq composite dropped 1.6% to 11,669. The banking industry fell again after Treasury Secretary Janet Yellen said she was not considering blanket protection for depositors at all banks unless they present a risk to the overall system.
The Fed gave a hint that it may not hike rates much more as it assesses the fallout from the banking industry's crisis.
The Fed said on Wednesday that it only sees additional policy firming that it may be appropriate, instead of repeating its statement that ongoing increases will be appropriate. Chair Jerome Powell emphasized the shift to may from will. The Fed released the latest set of projections from its policy makers on where rates are headed in the upcoming years. The federal funds rate was projected to be at 5.1% at the end of this year, up only a bit from where it currently sits, in a range of 4.75% to 5%.
The yield on the two-year Treasury, which tends to track expectations for the Fed, fell to 3.46% from 4.13% just before the projections were released. It was above 5% earlier this month.
Powell said that the Fed is not planning any rate cuts this year, and that it is still focused on getting inflation down to 2% of its 2% goal. He said that the Fed could start raising rates again if inflation makes it necessary.
The Fed was stuck with a tough decision as it tried to balance whether to keep hiking rates or relax off the increases due to the pain felt by banks. The second and third-largest U.S. bank failures in history have occurred in the last two weeks.
Too much pressure on the banking system, particularly among the smaller and mid-sized banks at the centre of investor's crosshairs, would mean fewer loans to businesses across the country. The risk of a recession could be higher because of the lower hiring and less economic activity.
The benchmark U.S. crude fell 60 cents to $70.30 a barrel in electronic trading on the New York Mercantile Exchange. The U.S. dollar fell to 130.72 Japanese yen from 131.39 yen in currency trading. The euro was up from $1.0857 to $1.0926 at the moment.