Asian stocks opened mostly higher on Thursday as investors assessed a more hawkish message from the U.S. Federal Reserve, with Japan's Nikkei 225 and South Korea's Kospi extending gains after touching fresh highs.
Japan's Nikkei 225 climbed 1.44%, while South Korea's Kospi added 0.93%. Elsewhere, Thailand's SET Index rose 1.16%. Australia's ASX 200 slipped 0.14%, while New Zealand's NZX 50 edged 0.03% lower.
Markets reacted to the Federal Reserve's latest policy decision, the first under Chairman Kevin Warsh, after policymakers kept the benchmark federal funds rate unchanged within a range of 3.5% to 3.75%.
While the decision itself matched expectations, investors focused on the Fed's updated projections, which pointed to a firmer path for interest rates. The central bank's so-called dot plot showed several officials now anticipating higher borrowing costs in 2026. The median year-end rate estimate for next year rose to 3.8% from 3.4% projected in March, indicating that at least one rate increase could be under consideration.
Adding to the uncertainty, Warsh chose not to submit his own rate forecast.
In his first press conference as Fed chair, Warsh refrained from signalling what the central bank's next move might be. He said inflation had remained above the Fed's 2% target for several years and stressed that policymakers remained committed to restoring price stability.
U.S. equities retreated after the announcement. The Dow Jones Industrial Average, which had earlier reached a record intraday high, ended the session down 0.98%. The S&P 500 lost 1.21%, while the Nasdaq Composite fell 1.34%.
Government bond markets also reflected the shift in expectations. The two-year U.S. Treasury yield, which is sensitive to monetary policy outlook, climbed as high as 4.22% before trading around 4.18%. Australian and Japanese bond yields moved higher in tandem as investors adjusted to the prospect of tighter policy settings.
Traders are now fully pricing in a U.S. rate increase by October and see a strong possibility of a move as early as September after roughly half of Fed officials projected higher rates this year.
Attention is also turning to central bank decisions elsewhere in the region. Economists surveyed by Bloomberg expect both Indonesia and the Philippines to raise policy rates by a quarter percentage point on Thursday as authorities respond to the economic effects of the sharp rise in global oil prices following the Iran conflict.
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