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Fed Likely To Hike Rates In March As Powell Vows Sustained Inflation Fight


WORLDWIDE: HEADLINES 

Fed Likely To Hike Rates In March As Powell Vows Sustained Inflation Fight 

The Federal Reserve on Wednesday said it is likely to hike interest rates in March and reaffirmed plans to end its bond purchases that month in what U.S. central bank chief Jerome Powell pledged will be a sustained battle to tame inflation. 

“The committee is of a mind to raise the federal funds rate at the March meeting assuming that the conditions are appropriate for doing so,” Powell said in a news conference, pinning down a policy statement from the central bank’s Federal Open Market Committee that only said rates would rise “soon.” 

Subsequent interest rate increases and an eventual reduction in the Fed’s asset holdings would follow as needed, Powell said, while officials monitor how quickly inflation falls from current multi-decade highs back to the central bank’s 2% target. 

Much was left undecided, he told reporters after the end of the Fed’s latest two-day policy meeting, including the pace of subsequent rate hikes or how quickly officials will let its massive balance sheet decline. 

But Powell was explicit on one key point: that with inflation high and for now apparently getting worse, the Fed this year plans to steadily clamp down on credit and end the extraordinary support it has provided to the U.S. economy during the coronavirus pandemic. 

Since the Fed’s last policy meeting in December, Powell said, inflation “has not gotten better. It has probably gotten a bit worse … To the extent that situation deteriorates further, our policy will have to reflect that.” 

“This is going to be a year in which we move steadily away from the very highly accommodative monetary policy we put in place to deal with the economic effects of the pandemic,” he added. 

Full coverage: REUTERS 

Samsung Elec Sees Tech Device Recovery In 2022, More Supply Chain Challenges 

Samsung Electronics Co Ltd (005930.KS) on Thursday forecast a recovery in global tech device demand in 2022 after reporting its best fourth-quarter profit in four years, but warned of ongoing challenges from supply chain issues and COVID-19. 

The world’s largest memory chip and smartphone maker said it expected growth across its chip business this year, as well as in smartphones, although supplies of non-memory chips were likely to remain tight. 

For memory chips, it expected server demand to grow due to an increase in IT investments and new high-core computer processors, while mobile chip demand was likely to increase due to an increase in 5G-capable models. 

Supply of non-memory chips was expected to remain tight due to 5G penetration, demand for high performance computing, increased outsourcing from chip design and manufacturing firms and continued inventory demand, it said. 

Samsung posted a 53% rise in fourth-quarter operating profit to 13.9 trillion won ($11.6 billion), in line with a company forecast, helped by brisk sales of memory chips and higher margins in chip contract manufacturing. 

Profits at its chip business, its largest division, more than doubled from the same quarter a year ago to 8.84 trillion won. 

Still, analysts said the profits were lower than the market had expected due to conservative shipments of memory chips, R&D costs and one-off year-end bonuses. 

Samsung said in a statement it came in below its initial guidance for memory chip shipments after refraining from pushing aggressively to expand sales, signaling a push to prioritise profits over volume. 

Full coverage: REUTERS 

WORLDWIDE: FINANCE/MARKETS 

Asian Shares Slump As Powell Warns On Inflation 

Asian shares fell to their lowest in more than 14 months, short-term U.S. yields rose to 23-month highs and the dollar strengthened on Thursday after the Federal Reserve’s chairman signaled plans to steadily tighten policy. 

At the same time, rising investor concerns over political tensions between Russia and Ukraine exacerbated worries over tight energy market supply, keeping oil prices elevated at multi-year highs. 

In its latest policy update on Wednesday, the Fed indicated it is likely to raise U.S. interest rates in March, as has been widely expected, and reaffirmed plans to end its bond purchases that month before launching a significant reduction in its asset holdings. 

But in the follow-up press conference, Powell warned that inflation remains above the Fed’s long-run goal and supply chain issues may be more persistent than previously thought. 

“There was a marked shift in terms of a relatively dovish statement and then a relatively hawkish press conference,” said David Chao, global market strategist, Asia Pacific (ex-Japan) at Invesco.  

Concerns that the Fed will increasingly prioritise fighting inflation walloped share markets, erasing a Wall Street rally. 

Asian shares also tumbled, with MSCI’s broad gauge of regional markets outside Japan (.MIAPJ0000PUS) down 1.6% in early trade on Thursday at its lowest level since early November 2020. 

Hong Kong’s Hang Seng index (.HSI) and Australian shares (.AXJO) fell 2% and Chinese blue-chips were 0.2% lower. (.CSI300) 

In Tokyo, the Nikkei fell 1.9%, touching its lowest point since December 2020. 

Full coverage: REUTERS 

Dollar Climbs As Fed Flags Hikes 

The dollar hit multi-week highs against other major currencies on Thursday, bolstered after Federal Reserve chair Jerome Powell primed investors for U.S. rate hikes beginning in March. 

Overnight the Fed left its policy rate unchanged but Powell foreshadowed a sustained battle to tame inflation. 

He told reporters there was “quite a bit of room to raise interest rates without threatening the labour market” and said the Fed was of a mind to begin lifting rates in March. 

The dollar leapt 0.7% against the yen in the wake of the Fed’s decision and Powell’s remarks, its steepest daily jump in more than two months as the prospect of imminent hikes spooked stock markets and drove bond yields higher. 

The yen inched a fraction lower to 114.74 per dollar on Thursday. The euro was sold to a six-week low of $1.2301 and the Australian dollar fell about 0.4% to a seven-week trough of $0.7076. 

“While communication from Fed members in the lead-up to this meeting meant that the pivot should not have been a surprise, risk appetite shrivelled as Powell’s press conference progressed and the extent of the Fed’s commitment to act in the face of significant inflation pressure became clear,” said ANZ analysts. 

The New Zealand dollar headed for a sixth consecutive session of selling and touched an almost 15-month low of $0.6626, despite data showing inflation there running at a three-decade high. 

Sterling is testing support at $1.3454, as investors await a Bank of England meeting next week and have an eye on the turmoil enveloping Prime Minister Boris Johnson, who is under pressure after attending parties during lockdowns. 

Full coverage: REUTERS 

Oil Falls On Profit-taking After Brent Surges To $90 A Barrel 
FILE PHOTO: The sun sets behind an oil pump outside Saint-Fiacre, near Paris, France September 17, 2019. REUTERS/Christian Hartmann/File Photo

Oil prices fell on Thursday as investors cashed in profits from the 2% gains in the previous session after the U.S. Federal Reserve indicated an interest rate hike in March, leading to a technical correction in surging energy markets. 

Futures pulled back amid a broader decline in financial markets triggered by the March interest rate increase telegraphed by the Fed and a surge in the U.S. dollar. Crude prices have surged amid the tensions between Ukraine and Russia, the world’s second-largest oil producer, that has fanned fears of disruptions of natural gas to Europe. 

Brent crude futures slipped 31 cents, or 0.3%, to $89.65 a barrel at 0122 GMT, after jumping about 2% to hit $90 for the first time in seven years on Wednesday. 

U.S. West Texas Intermediate (WTI) crude futures also eased 26 cents, or 0.3%, to $87.09 a barrel, after gaining 2% in the previous session. 

“Continued supply challenges and mounting Russia-Ukraine tensions continue to support crude oil prices. It is down slightly today but I think it is nothing more than a technical move,” said Howie Lee, economist at OCBC in Singapore. 

While the Russia-Ukraine tensions have a role in lifting oil prices, “real supply challenges both within OPEC and the U.S. … have been the main drivers in pushing the market higher,” Lee said, referring to the Organization of the Petroleum Exporting Countries (OPEC). 

OPEC missed its planned supply increase target in December, highlighting capacity constraints that are limiting supply as global demand recovers from the COVID-19 pandemic. 

OPEC+, which includes OPEC and other allies such as Russia, is gradually relaxing 2020’s output cuts as demand recovers from the demand collapse that year. But many smaller producers can’t raise supply and others have been wary of pumping too much in case of renewed COVID-19 setbacks. 

Full coverage: REUTERS 

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