Japan’s markets led gains in Asia, with a Morgan Stanley Capital International (MSCI) gauge of regional equities climbing by the most in a week.
US stock futures also rallied in Asian trading after the S&P 500 Index closed 0.3% lower in the aftermath of the Fed’s announcement yesterday.
Treasuries fell on bets the aggressive move to start the cutting cycle would mean the Fed would need to lower interest rates less in the long run.
Chair Jerome Powell himself cautioned against assuming big cuts would continue and signalled borrowing costs may need to remain higher than pre-pandemic norms.
The Fed’s move is reinforcing expectations that the US economy will avoid a downturn and cemented wagers that policymakers won’t be in a rush to deliver further easing — a stance that’s likely to underpin the dollar in the coming days.
An overwhelming majority in a survey of Bloomberg terminal subscribers expects a soft landing for the world’s largest economy, with 75% forecasting that it will avoid a technical recession by the end of next year.
“The Fed’s jumbo rate cut shows its clear intention to support the US economy and aim for a ‘soft landing’,” Nomura Holdings Inc strategists including Chetan Seth wrote in a note.
“So long as the US manages to avoid a recession in the months ahead, the Fed pre-emptively cutting rates should be generally supportive of stocks.
The Fed’s first reduction in more than four years was accompanied by projections indicating an additional 50 basis points of cuts across the remaining two policy meetings this year.
Powell said launching the unwind of the central bank’s historic tightening campaign with a big move while the US economy is still strong would help limit the chances of a downturn.
An index of dollar strength slipped after a two-day gain, while the yen weakened to trade at around 143 to the greenback.
At a decision on Friday, Bank of Japan governor Kazuo Ueda faces the delicate task of making sure investors are firmly aware of interest-rate hikes to come without ruffling markets even as he stands firm on policy.
“The yen’s decline has been broadened by rising US long-term interest rates on the view that there is no rush to cut rates in the future, as well as by yen sales by domestic importers,” said Keiichi Iguchi, a senior strategist at Resona Holdings Inc.
In Asia, Singapore stocks were on track for their highest close since 2007 as the prospect of lower interest rates lifted the city-state’s real estate investment trusts, and added to the appeal of the high-yielding market.
The Hong Kong Monetary Authority lowered its base interest rate for the first time in four years following the Fed’s cut, while New Zealand’s economy shrank in the second quarter.
HSBC Holdings reduced its key benchmark rate in Hong Kong for the first time since 2019, a move likely to hit margins while bringing relief to homeowners and borrowers in the Asian financial hub.
Elsewhere, the Bank of England is likely to refrain from cutting rates for a second consecutive meeting today, maintaining a patient approach to reversing the most aggressive policy tightening in decades.
Governor Andrew Bailey may provide investors with more hints that the central bank will cut rates again in November.
Gold nudged higher following a tumultuous session in which it touched a record high after the Fed rate cut.
Oil was steady as investors weighed signs of weak US demand against the Fed’s rate cut and escalating tensions in the Middle East.