The Federal Reserve signaled hawkish sentiment, and the market expects at least one rate hike this year.

The US Federal Reserve kept interest rates unchanged and released hawkish signals, leading to a stronger dollar and a surge in US Treasury yields. Meanwhile, the remote memorandum of understanding signed between the US and Iran has taken effect, causing international oil prices to fall by more than 2%, gold prices to rise slightly, and some Asian stock markets to climb to new highs.

Despite analysts' expectations of one Federal Reserve rate hike this year, news of a memorandum of understanding signed between the US and Iran boosted optimism in some markets. Japan's and South Korea's benchmark stock indices broke through the 71,000 and 9,000 mark for the first time on Thursday (June 18), rising 1.65% and 2.25% respectively. Singapore's Straits Times Index reached a new high, closing at 5212.84 points. Hong Kong and Jakarta stock markets, however, closed lower.

The Federal Reserve meeting that concluded on Thursday in Singapore marked the first appearance of new Chairman Warsh . Analysts believe that keeping interest rates unchanged was not the focus of this meeting. The Fed's upward revision of its inflation forecast and removal of the key phrase "dovish bias" indicate that a rate cut is unlikely in the short term. Market participants expect the Fed to raise interest rates as early as next month.

The Federal Reserve significantly raised its median forecast for this year's personal consumption expenditures price index increase to 3.6% from 2.7% in March, and its median forecast for core inflation this year to 3.3% from 2.7%.

Following the policy meeting, Warsh told a press conference, "Persistently high prices are a burden on the American people, but the past does not necessarily determine the future. Officials are clear and consistent in their stance, and the Federal Open Market Committee (FOMC) is committed to achieving price stability."

Warsh also declined to submit interest rate forecasts, and after he made it clear that the Fed would not tolerate high inflation, traders sold off short-term Treasury bonds and bet that the Fed could raise rates as early as next month.

In an interview with Lianhe Zaobao, Wu Tianfu, director of UOB Kay Hian Wealth Management, said that Warsh's failure to submit its own interest rate forecasts indicates that policy direction will depend on the inflation data to be released.

He believes that interest rates will not be lowered in the short term, and there is room for at least one more rate hike this year. If inflation persists, there may be more rate hikes.

The yield on the two-year U.S. Treasury note, which is sensitive to monetary policy expectations, rose 13 basis points, marking its biggest gain since April of last year. The Federal Reserve's hawkish stance also boosted the dollar; as of 6 p.m. Singapore time on Thursday (June 18), the dollar index rose 0.48% to 100.57.

Wu Tianfu said that the rise in short-term treasury bond yields to their highest level in more than a year reflects that the market has already digested the original expectations of interest rate cuts.

Zhang Juexing, a stockbroker at Phillip Securities in Singapore, said in an interview that Asian stock markets were mixed on Thursday, reflecting two competing narratives in the market. On the one hand, the preliminary peace agreement between the US and Iran boosted investor optimism. The easing of tensions helped lower oil prices, eased concerns about inflation, and boosted risk appetite.

On the other hand, the market is also digesting the latest developments from the Federal Reserve. Although interest rates remained unchanged, the Fed's overall tone was more hawkish than expected. Investors are now discussing whether interest rates will remain high for an extended period, which has dampened the optimism that emerged earlier this week.

Oil prices continued to fall, erasing previous gains. With the interim peace agreement between the US and Iran taking effect, crude oil prices have almost wiped out all gains made during the conflict. The market is now focused on whether shipping through the Strait of Hormuz can resume soon, as Persian Gulf oil-producing countries are restarting previously closed oil fields.

Brent crude oil prices fell 2.15% to $77.84 a barrel; West Texas Intermediate (WTI) crude oil prices were $74.81 a barrel, a drop of 2.58%.

Goldman Sachs expects Persian Gulf oil exports to recover to pre-war levels by the end of next month, compared to a previous forecast of the end of August.

Haris Khurshid, chief investment officer of Karobaar Capital LP, believes that reaching an agreement is easy, but the difficulty lies in determining how much of the chaos caused over the past few months will have a permanent impact.

He said, "Markets often think that reopening means everything is reset, but in reality, some of the changes that occurred during the conflict may last longer than people expect."

Source: [Lianhe Zaobao] (https://www.zaobao.com/finance/world/story20260618-9224597)