Stocks across Asia edged lower on Thursday as investors weighed the Federal Reserve’s latest policy shift and signaled concern over the pace of future rate cuts. The move follows a dovish tone from Fed Chair Jerome Powell after the central bank's second consecutive rate reduction.
- Federal Reserve cut benchmark interest rate by 25 basis points to 4.25%-4.50%.
- Second consecutive rate reduction, following a similar move in November 2025.
- Fed announced halt to balance sheet reduction effective December 1, 2025.
- Unemployment rate rose to 4.3% in October, signaling labor market softening.
- 10-year U.S. Treasury yield rose to 4.27% amid growing rate cut skepticism.
- MSCI Asia Pacific Index declined 0.5% amid capital outflows and dollar strength.
Markets in Tokyo, Seoul, and Sydney declined modestly, with Japan’s Nikkei 225 falling 0.4% and South Korea’s KOSPI dropping 0.3%. Investor sentiment was dampened by the Federal Reserve’s decision to lower the benchmark interest rate by 25 basis points, bringing the federal funds rate range to 4.25%–4.50%. This marked the second consecutive cut, following a similar move in November, as policymakers responded to signs of a softening labor market, including a rise in the unemployment rate to 4.3% in October. The Fed also announced it would cease reducing its balance sheet—commonly referred to as quantitative tightening—effective December 1, ending a multi-year effort to shrink its $8.5 trillion portfolio. This pause was interpreted by some analysts as a signal of caution, suggesting the central bank may not be ready to cut rates aggressively even if inflation remains below target. The benchmark 10-year U.S. Treasury yield rose to 4.27%, reflecting increased speculation about the timing and magnitude of future easing. The shift in U.S. monetary policy has ripple effects across global markets. Asian equities, which have been sensitive to U.S. rate trends, are now facing pressure from a stronger dollar and capital outflows. The MSCI Asia Pacific Index closed 0.5% lower, with financial and technology sectors leading losses. Investors are now closely monitoring the Fed’s December FOMC meeting for additional clues on the path forward, as expectations for a third rate cut in 2025 have cooled. The developments underscore growing uncertainty in global markets, particularly for emerging economies reliant on U.S. dollar funding. Countries such as India and Indonesia have seen their currencies weaken slightly this week, while bond yields in those regions have climbed. The Fed’s balance sheet pause, while not a policy reversal, has amplified concerns about the durability of the current easing cycle.