Federal Reserve Chair Warsh declined to give a clear signal on further rate hikes, helping markets stabilize after this week's inflation data shock. Global equities broadly advanced while the dollar came under pressure and retreated.
Speaking Thursday at an International Monetary Fund event in Bangkok, Warsh described artificial intelligence as the most far-reaching transformation for the U.S. and global economies in his lifetime, calling it a positive supply shock over the medium term. He gave no forward guidance on the path of monetary policy, only reiterating the Fed's commitment to price stability and saying he "would not pre-judge the outcome of the meeting."
Warsh's remarks quickly drove a market repricing. Traders cut the probability of a Fed rate hike this month to 15% from more than 25% on Thursday. The dollar index fell 0.1%, after already dropping 0.3% in the prior session, its largest single-day decline in more than a month. Asia-Pacific and European stocks rose in tandem, and U.S. equity futures also edged higher.
DBS Bank macro strategist Wei Liang Chang noted that "the market is relieved by Warsh's judgment that AI will boost productivity over the medium term, which helps ease inflation expectations and dampen fears of consecutive rate hikes."
The Euro Stoxx 50 rose 0.4%, Germany's DAX gained 0.5%, France's CAC 40 added 0.3%, while the UK's FTSE 100 slipped 0.4%.
South Korea's KOSPI closed up 2% at 5,668.05 points, Japan's Nikkei 225 closed up 1.4% at 65,324.29 points, and Japan's Topix closed up 1.7% at 4,066 points.
The U.S. 10-year Treasury yield rose 3 basis points to 5.09%.
The Japanese 10-year yield rose 4.5 basis points to 2.935%.
The Australian 10-year yield rose 2 basis points to 5.23%.
The dollar index fell 0.1%.
Gold prices were roughly flat at $4,172 per ounce.
Brent crude fell 0.7% to $105.20 per barrel.
Rate Hike Expectations Loosen, Risk Assets Get Breathing Room
Saxo Markets chief investment strategist Charu Chanana said that "Warsh's refusal to commit to another rate hike led to some Fed hike bets being unwound. After strong inflation data, his phrasing that he 'would not pre-judge the outcome of the meeting' weighed on the dollar."
The Fed raised rates by 25 basis points in September, its first hike since 2023, with unanimous support from all 19 policy committee members, and most members also expected another hike could come within the year. In the weeks since, several officials have reiterated that further tightening may be needed, but stressed there is ample time to gather economic data before deciding.
Chip Stocks Halt Decline, Asian and European Markets Broadly Rise
Before Warsh's remarks, global equities had already moved higher as the wave of chip stock selling eased. In Asia, Samsung Electronics and SK hynix each rose more than 4%, lifting South Korea's KOSPI to a 2% gain at 5,668.05 points, rebounding from Thursday's slump to its lowest close since April. Japan's Nikkei 225 closed up 1.4% at 65,324.29 points, and Japan's Topix closed up 1.7% at 4,066 points.
European markets also opened broadly firm, with the Euro Stoxx 50 up 0.4%, Germany's DAX up 0.5%, France's CAC 40 up 0.3%, while the UK's FTSE 100 slipped 0.4%.
Notably, Indonesian stocks plunged more than 11% intraday, the biggest drop since January 1998, after MSCI announced it would remove Indonesia from its emerging markets index, while the rupiah also weakened slightly.
Sustainability of Rebound in Doubt, Concentration Risk in Tech Sector Remains
Gold prices were roughly flat at $4,172 per ounce. Brent crude fell 0.7% to $105.20 per barrel, with elevated oil prices continuing to support inflation expectations — since the outbreak of the Middle East conflict, oil prices have been a key driver keeping U.S. inflation stubbornly high.
Whether this equity rebound can continue depends in part on whether the rally broadens from the heavily tech-weighted stocks that led most of this year's gains to a wider range of sectors. This week's sharp swings exposed the market's excessive reliance on AI-themed stocks, and broader sector participation would help reduce that concentration risk.
Toyo Securities strategist Ryuta Otsuka said, "For now it looks like a technical rebound, and overall market sentiment has calmed somewhat." He also cautioned that volatility could remain relatively high next week as investors continue to track earnings data and "search for a bottom."
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