Asian stocks fell, with the regional gauge heading for a six-week low
The MSCI Asia Pacific Index declined 0.8% to 133.61 as of 9:45 a.m. in Tokyo, heading for the lowest close since Feb 7. The Fed said overnight that its key rate, currently near zero, would be 1% by the end of 2015 and 2.25% a year later.
"We're going to see more follow-through selling in Asia," Toby Lawson, head of futures, options and cash equities trading for Asia Pacific at Newedge Group SA in Sydney, said by phone. "It's significant that the Fed fund rate will rise to 1% by the end of 2015. We could see capital outflows from emerging markets back into the US, especially given residual concerns about China's economy slowing."
South Korea's Kospi index fell 0.5%. Australia's S&P/ASX 200 Index decreased 0.8% and New Zealand's NZX 50 Index slipped 0.2%. Japan's Topix index dropped 0.4%, reversing gains of as much as 0.6%.
Yellen's remarks at her first news conference as the head of the central bank pointed to a more aggressive path toward higher interest rates than many had anticipated, and bets in financial markets shifted accordingly.
The comments came after a two-day meeting in which Fed officials made another reduction in their bond-buying stimulus and decided to jettison a set of guideposts they were using to help the public anticipate when they would finally raise rates.
The Fed said the change in its rate hike guidance did not mark a shift in its intentions and that it would wait a "considerable time" after shuttering its asset purchase program before pushing borrowing costs higher.
Yellen, who had fielded numerous questions without a hitch, hesitated when asked what the Fed meant by "considerable."
"I -- I, you know, this is the kind of term it's hard to define, but, you know, it probably means something on the order of around six months or that type of thing. But, you know, it depends -- what the statement is saying is it depends what conditions are like."
Several analysts wondered whether her answer was an unintended slip, given the deliberately vague language of the Fed's statement.
Either way, the reaction in financial markets was swift and sharp. Prices for US stocks and government bonds added to earlier losses triggered by fresh Fed forecasts that showed policymakers are inclined to raise rates a bit more aggressively than they had been just a few months ago. The US dollar rose.
"The forecast change could be interpreted as a relatively hawkish shift ... and as such the general market reaction seems well-founded," said JPMorgan economist Michael Feroli.
Futures traders moved to price in a first interest rate hike as soon as April 2015. Previously, it was July.
Most top Wall Street economists, however, continued to see the first rate hike in the second half of 2015, according to a Reuters poll.