Apac stock markets respond better than Wall Street to Fed’s possible pause in rate hikes

THE United States Federal Open Market Committee (FOMC) raised its funds rate overnight by 25 basis points (bps) as expected. Stock markets in Asia responded better than Wall Street to the suggestion that this might be the end of the rate hike cycle.

The US central bank’s move on Wednesday (May 3) took the Federal Reserve’s funds rate upper bound to 5.25 per cent – the highest level since June 2006. This marks the same peak of the 2004-2006 cycle, but the pace of tightening is much quicker: 500 bps in 15 months now versus 425 bps over two years in the 2004-2006 cycle.

The FOMC statement dropped the phrase “anticipates that some additional policy firming might be appropriate”, which DBS senior rates strategist Eugene Leow interprets as the Fed now views policy settings to be sufficiently restrictive.