Asian stocks slip as Fed flags inflation risks, Donald Trump mulls Iran Strike

Asian markets dropped on Thursday amid heightened geopolitical tensions and fresh warnings from the US Federal Reserve about rising inflation linked to US President Donald Trump’s escalating trade war. Investor sentiment was also rattled by uncertainty over whether the US would join Israel’s ongoing airstrikes against Iran.Hong Kong's Hang Seng Index fell more than 1 per cent, Tokyo's Nikkei shed 0.7 per cent, and Shanghai's Composite Index lost 0.3 per cent in early trade. Other markets across Asia, including Sydney, Seoul, Singapore, and Jakarta, also opened in the red.The declines followed the Federal Reserve’s decision to keep interest rates unchanged for a fourth consecutive time. While Fed Chair Jerome Powell acknowledged the US economy remained “solid,” he warned that “increases in tariffs this year are likely to push up prices and weigh on economic activity.” In its updated projections, the Fed revised its growth outlook downwards while raising expectations for inflation and unemployment.“Ultimately, the cost of the tariff has to be paid and some of it will fall on the end consumer,” Powell said, adding that the bank would “wait to learn more” before making further moves.Meanwhile, Trump again lashed out at the central bank ahead of the rate decision, saying, “We have a stupid person, frankly, at the Fed,” and questioned whether he could appoint himself to lead the institution. Speaking at the White House, he insisted, “We have no inflation, we have only success.”According to news agency Reuters, the yen and gold, traditional safe havens, saw gains as market participants grew wary over Trump’s ambiguous stance on military action. “I may do it. I may not do it,” Trump said when asked whether the US would join Israeli strikes on Iranian nuclear facilities. According to the Wall Street Journal, Trump had approved military plans but was waiting to see if Iran might back off its nuclear ambitions.In response, gold rose 0.3 per cent to $3,378 per ounce, and the yen appreciated 0.2 per cent to 144.92 against the dollar. The US dollar itself also gained, with the euro dipping to $1.1455, and sterling down to $1.3396.Oil prices edged slightly lower despite volatile trading. Brent crude fell 0.4 per cent to $76.40 a barrel, while West Texas Intermediate also dropped 0.4 per cent to $74.86. Still, prices remain close to multi-month highs due to fears that Iran could disrupt shipments through the Strait of Hormuz, a vital corridor for global oil supply. “We don’t see it as a likely scenario at this time,” said Mike Sommers of the American Petroleum Institute to Bloomberg, “but everybody should be watching.”According to JP Morgan Asset Management’s Tai Hui, the Fed’s outlook matches current data but ongoing uncertainty over trade and US foreign policy will continue to drive market volatility. “Trade policy, fiscal policy, and unintended consequences of policies from the Trump administration are contributing to market volatility in the second half of this year,” Hui noted.Elsewhere, S&P 500 futures pointed 0.4 per cent lower, while US markets remained closed for a national holiday.While regional central banks, including the Bank of England and Swiss National Bank, are due to issue policy decisions later today, investor focus remains fixed on Trump’s next move, both on interest rates and in the Middle East. As Trump teased to reporters, “The next week is going to be very big.”