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Asian and European markets rose Thursday and the dollar held gains after the Federal Reserve laid out a more hawkish path by speeding up the taper of its pandemic financial support and indicated a number of interest rate hikes over the coming years.
While the much-anticipated decision spells an end to the age of ultra-loose monetary policy, investors cheered the fact the US central bank had outlined a plan to overcome a months-long surge in inflation that many fear could threaten the economic recovery.
Policymakers said they would end their bond-buying programme in March, allowing them to begin hiking borrowing costs. A closely watched gauge of likely rate moves suggests they could lift them six times before the end of 2023.
The announcement, which met expectations, helped soothe concerns on trading floors that officials were falling behind the curve and risked letting prices run out of control, with some warning of stagflation where economic growth stalls.
It also comes as consumer inflation sits at a four-decade high.
Fed boss Jerome Powell said that while prices would likely continue rising next year, he remained upbeat about the world's top economy.
"Economic activity is on track to expand at a robust pace this year, reflecting progress on vaccinations and the reopening of the economy. Aggregate demand remains very strong," Powell told reporters following the two-day policy meeting.
Powell admitted recently that he and his colleagues miscalculated how far prices would rebound in the wake of the pandemic crisis.
"It would seem that today's decision was a first move by the Fed to restore its credibility as an inflation-managing institution," said Christian Scherrmann, of asset manager DWS.
"But its more hawkish announcement was also justified by more optimism that progress towards maximum employment has picked up."
All three main indexes on Wall Street rallied after the decision, which analysts said removed a large amount of uncertainty among investors.
- 'Threading the needle' -
And much of Asia followed suit, with Tokyo up more than two percent as the dollar's rise against the yen helped exporters, while Shanghai, Singapore, Seoul, Taipei, Manila and Bangkok were also up.
US futures were also well up.
"Jerome Powell did a very good job threading the needle. He was very precise and offered no surprises," said market strategist Louis Navellier.
"Investors were, and should be, delighted that rates will stay at near-zero levels until March. Moreover, the predictable rate rises are now fully baked into forecasts giving the markets the stability that will be needed to help markets move toward their next leg upward."
Hong Kong reversed early losses but slipped as tech firms were hit by concerns that the United States would impose fresh sanctions on Chinese firms in what would be the latest volley in a standoff with Beijing in the sector.
London, Paris and Frankfurt opened with strong gains as eyes turn to policy decisions later in the day by the Bank of England and European Central Bank, which are also trying to face down soaring prices.
Sydney, Wellington and Mumbai fell.
While the Fed news improved the mood, the surge in new Covid cases and the rise of the Omicron variant has fanned fears that containment measures will be ramped up, hitting holiday plans for millions and dealing another blow to the recovery.
In the latest move, France said it would tighten restrictions on travel to and from Britain to slow transmissions.
Still, oil prices got a boost from data showing the sharpest drop in US stockpiles since September, suggesting demand remains strong for now.
"The market has been pricing in the worst-case scenario for demand amid the emergence of Omicron," said Daniel Hynes, at Australia and New Zealand Banking Group.
But he added: "That's not to say we are out of the woods. There are still plenty of risks ahead."
- Key figures around 0820 GMT -
Tokyo - Nikkei 225: UP 2.1 percent at 29,066.32 (close)
Hong Kong - Hang Seng Index: UP 0.2 percent at 23,475.50 (close)
Shanghai - Composite: UP 0.8 percent at 3,675.02 (close)
London - FTSE 100: UP 1.3 percent at 7,261.11
Dollar/yen: UP at 114.13 from 114.02 yen late Wednesday
Euro/dollar: UP at $1.1307 from $1.1297
Pound/dollar: DOWN at $1.3260 from $1.3265
Euro/pound: DOWN at 85.09 pence from 85.15 pence
West Texas Intermediate: UP 1.1 percent at $71.64 per barrel
Brent North Sea crude: UP 1.1 percent at $74.67 per barrel
New York - Dow: UP 1.1 percent at 35,927.43 (close)
dan/qan
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