Asian stocks slide after Fed inflation warning; oil dips amid MidEast tensions

Asian stocks dropped on Thursday after the U.S. Federal Reserve warned that former President Donald Trump’s trade policies could reignite inflation and slow economic growth. Meanwhile, oil prices edged lower as markets kept a close eye on developments in the Israel-Iran conflict.

While geopolitical tensions remain the main concern for investors, focus also turned to the Fed’s latest policy meeting held Wednesday. The central bank, as expected, left interest rates unchanged for the fourth consecutive time. However, in its statement, the Fed noted that while uncertainty about the economic outlook had eased somewhat, it "remains elevated."

In its first economic forecast since Trump imposed sweeping tariffs in April, the Fed downgraded its growth projection for 2025 and raised its estimates for both inflation and unemployment.

Fed Chair Jerome Powell described the U.S. economy as "still solid" but acknowledged that the new tariffs were likely to "push up prices and weigh on economic activity." He emphasized that the central bank was in a good position to "wait to learn more" before making any decisions on interest rate changes. However, the Fed's closely watched "dot plot" signaled the possibility of two rate cuts later this year.

“Ultimately, the cost of tariffs has to be paid—and some of it will fall on the end consumer,” Powell said. “We know that’s coming, and we just want to see a bit of that materialize before we act prematurely.”

Trump, who has repeatedly pressured the Fed to cut rates, lashed out again just hours before the decision. “We have a stupid person, frankly, at the Fed,” he said during remarks at the White House. “We have no inflation, we have only success, and I’d like to see interest rates get down. Maybe I should go to the Fed. Am I allowed to appoint myself?”

Despite political pressure, Powell defended the Fed’s stance, stressing that patience would lead to “smarter and better decisions.”

JP Morgan Asset Management strategist Tai Hui commented, “The Fed's view suggests the economy is fundamentally strong. But uncertainty around trade, fiscal policy, and unpredictable actions from the Trump administration are fueling market volatility.”

Following a lackluster session on Wall Street, most Asian markets turned red. Hong Kong led regional losses with a drop of over 1%, followed by declines in Tokyo, Shanghai, Sydney, Singapore, Seoul, Wellington, Taipei, Manila, and Jakarta.

Adding to investor caution, Trump hinted at the possibility of the U.S. joining Israeli military actions against Iran. “I may do it, I may not do it. Nobody knows what I’m going to do,” he said, adding that Iran had signaled a willingness to negotiate. “The next week is going to be very big,” he added, without elaborating.

Iran’s Supreme Leader Ayatollah Ali Khamenei dismissed any possibility of bowing to U.S. pressure, rejecting Trump’s call for “unconditional surrender.”

Despite rising tensions, oil prices eased slightly following a volatile trading session on Wednesday. Analysts noted the absence of immediate escalation, though risks remain.

The key concern among traders is whether Iran might block the Strait of Hormuz, a vital shipping route through which about 20% of the world’s oil passes.

“We don’t see it as a likely scenario at this time,” said Mike Sommers, president of the American Petroleum Institute, in an interview with Bloomberg TV. “But given Iran’s precarious position right now, everyone should be watching the Strait of Hormuz closely.”

Key figures at around 0230 GMT

Tokyo - Nikkei 225: DOWN 0.7 percent at 38,597.16 (break)
Hong Kong - Hang Seng Index: DOWN 1.0 percent at 23,486.26
Shanghai - Composite: DOWN 0.3 percent at 3,377.19
Euro/dollar: DOWN at $1.1455 from $1.1485 on Wednesday
Pound/dollar: DOWN at $1.3396 from $1.3420
Dollar/yen: UP at 145.15 yen from 145.09 yen
Euro/pound: DOWN at 85.51 pence from 85.55 pence
West Texas Intermediate: DOWN 0.4 percent at $74.86 per barrel
Brent North Sea Crude: DOWN 0.4 percent at $76.40 per barrel
New York - Dow: DOWN 0.1 percent at 42,171.66 (close)
London - FTSE 100: UP 0.1 at 8,843.47 (close)