LONDON: Caution descended on markets on Wednesday with world stocks holding below recent record highs as investors waited to see whether the U.S. Federal Reserve would signal a faster path toward policy normalisation than previously expected.
"Markets are hoping for reassurance from the Fed that rising bond yields are not something to worry about, and that takes a bit of steam out of the bond market."AdvertisementEuropean shares were a touch softer, while in Asia, an index of regional equities excluding Japan pulled back 0.4per cent. Japan's Nikkei 225 closed flat.
Inflation expectations have also ticked higher with the break-even rate on 10-year Treasury Inflation-Protected Securities on Tuesday rising above 2.3per cent for the first time since July 2014. The break-even rate for 30-year TIPS hit 2.24per cent, the highest since September 2014. "But we expect Powell to push back against talk of policy tightening because of the large amount of labour market slack ... U.S. bond yields and the U.S. dollar could jump if the FOMC’s post‑meeting statement and Powell’s statement are not deemed dovish enough."