In This Article:
* MSCI Asia ex-Japan falls 1.6%, lowest since Nov. 2020
* Powell warns inflation above long-run goal
* U.S. 2-year yield near 2-year highs
By Andrew Galbraith
SHANGHAI, Jan 27 (Reuters) - Asian shares fell to their lowest in more than 14 months, short-term U.S. yields rose to 23-month highs and the dollar strengthened on Thursday after the Federal Reserve's chairman signaled plans to steadily tighten policy.
At the same time, rising investor concerns over political tensions between Russia and Ukraine exacerbated worries over tight energy market supply, keeping oil prices elevated at multi-year highs.
In its latest policy update on Wednesday, the Fed indicated it is likely to raise U.S. interest rates in March, as has been widely expected, and reaffirmed plans to end its bond purchases that month before launching a significant reduction in its asset holdings.
But in the follow-up press conference, Powell warned that inflation remains above the Fed's long-run goal and supply chain issues may be more persistent than previously thought.
"There was a marked shift in terms of a relatively dovish statement and then a relatively hawkish press conference," said David Chao, global market strategist, Asia Pacific (ex-Japan) at Invesco.
"Powell (is) not committing to the size or the frequency of rate hikes and also the timing of the balance sheet reduction. I think that buys him a bit of wiggle room as to how quickly and with what velocity he wants to normalise monetary policy in the U.S. ... it's very data dependent and so we're certainly watching other economic data that's going to be released especially inflation data, inflation expectations data, which I think could trigger more aggressive monetary policy tightening."
Concerns that the Fed will increasingly prioritise fighting inflation walloped share markets, erasing a Wall Street rally.
Asian shares also tumbled, with MSCI's broad gauge of regional markets outside Japan down 1.6% in early trade on Thursday at its lowest level since early November 2020.
Hong Kong's Hang Seng index and Australian shares fell 2% and Chinese blue-chips were 0.2% lower.
In Tokyo, the Nikkei fell 1.9%, touching its lowest point since December 2020.
The policy-sensitive U.S. 2-year yield jumped amid expectations of Fed tightening, rising to a top of 1.1780% in morning trade in Asia, a level last reached in February 2020. The benchmark 10-year yield also ticked up from Wednesday's close, rising to 1.8548% from 1.846%.
The dollar rose on the back of higher yields, lifting the U.S. dollar index, which measures the greenback against major peers, to 96.557.