The Japan Times - US stocks fall, dollar rallies as Fed raises inflation forecast

The US central bank, as expected, kept interest rates unchanged as newly-installed Fed Chairman Kevin Warsh announced plans to broadly review Fed monetary policy protocols with an eye towards updating the institution.

Warsh was appointed by President Donald Trump, who had lambasted former Fed chair Jerome Powell over his reluctance to cut interest rates.

But Warsh's appointment has coincided with a jump in prices. US inflation came in at a three-year high in April, as Trump's war on Iran has caused energy prices to surge, with knock-on effects on a range of sectors in the world's largest economy.

At Wednesday's press conference, Warsh vowed the central bank would "deliver price stability" as the Fed raised year-end PCE inflation expectations to 3.6 percent from 2.7 percent in March.

The statement was accompanied by projections signaling that Fed policy makers expect one interest rate hike by the end of 2026.

Art Hogan of B. Riley Wealth Management described the chart showing the projections as "more hawkish" than expected, noting that Warsh's press conference was dominated by questions about inflation with much less focus on the Fed's other mandate of achieving full employment.

The meeting's tone reflects "that employment is not a concern at the moment, while inflation is," said Angelo Kourkafas from Edward Jones. "The bar for rate hikes, which was thought to be very high, is not as high anymore."

Futures markets showed a significant shift in bets towards interest rate hikes, with more than 60 percent eyeing higher interest rates at the Fed's September meeting compared with less than 30 percent prior to Wednesday's decision.

The dollar, meanwhile, advanced against the euro and other major currencies, while yields on 10-year US Treasury bonds pushed higher.

Earlier, oil prices finished modestly higher as markets anticipated the signing of a peace accord between Washington and Tehran expected to reopen the Strait of Hormuz.

The United States on Wednesday released the text of the agreement with Iran, under which officials said Tehran would agree to dilute its enriched uranium stockpile under UN supervision, which one official described as a "major, major win."

Iran has repeatedly insisted, including on Wednesday, that nuclear issues would only be discussed in subsequent talks after the initial deal is signed.

Oil industry experts and shipping companies have warned that it will take time to restore normal operations after the waterway's near shutdown.

"Investors also want clarity concerning the Strait of Hormuz, and if shipping will be forced to pay a 'fee' to Tehran, ostensibly for an escort to ensure a safe transit," said market analyst David Morrison at Trade Nation.

Crude inventories held by OECD member countries fell in May to the lowest level since 1990 as governments drew down stocks to offset the blockage of Gulf crude shipments during the Middle East war, the International Energy Agency said Wednesday.

- Key figures around 2015 GMT -

Brent North Sea Crude: UP 0.8 percent at $79.55 a barrel

West Texas Intermediate: UP 1.0 percent at $76.79 a barrel

New York - Dow: DOWN 1.0 percent at 51,492.55 (close)

New York - S&P 500: DOWN 1.2 percent at 7,420.10 (close)

New York - Nasdaq: DOWN 1.3 percent at 26,021.66 (close)

London - FTSE 100: UP 0.1 percent at 10,508.61 (close)

Paris - CAC 40: DOWN 0.2 percent at 8,430.79 (close)

Frankfurt - DAX: UP 0.1 percent at 24,934.67 (close)

Tokyo - Nikkei 225: UP 0.7 percent at 69,902.25 (close)

Hong Kong - Hang Seng Index: DOWN 0.7 percent at 24,312.16 (close)

Shanghai - Composite: UP 0.4 percent at 4,108.08 (close)

Euro/dollar: DOWN at $1.1494 from $1.1608 on Tuesday

Pound/dollar: DOWN at $1.3282 from $1.3426

Dollar/yen: DOWN at 160.71 yen from 160.43 yen

Euro/pound: UP at 86.53 pence from 86.44 pence

burs-jmb/mjf

S.Yamamoto--JT