Asian Stocks Rise as Markets Price in Expected Fed Rate Cut Next Week

Asian shares rose Friday, tracking Wall Street’s record-setting run after U.S. economic data increased expectations that the Federal Reserve will cut interest rates next week to support the economy.

Tokyo’s Nikkei 225 rose 0.9% to 44,781.09, marking its third consecutive day of gains. Semiconductor company Tokyo Electron, Sony Group and Fast Retailing were among the active movers in Japan. Hong Kong’s Hang Seng climbed 1.5% to 26,484.65 after a report that Beijing may order state banks to help cover unpaid bills of local governments, while mainland China’s Shanghai Composite inched up 0.2% to 3,877.38. South Korea’s Kospi gained 1.3% to 3,387.02, Australia’s S&P/ASX 200 added 0.7% to 8,867.90, India’s BSE Sensex rose 0.3% and Taiwan’s Taiex was up 0.6%.

U.S. markets extended gains on Thursday, with the S&P 500 rising 0.8% to an all-time high for the third straight session, the Dow Jones Industrial Average advancing 617 points, or 1.4%, and the Nasdaq composite climbing 0.7%. Treasury yields eased after a mixed set of U.S. reports, which were among the last data likely to influence the Fed before its policy meeting next week. Market participants overwhelmingly expect the central bank to lower its main interest rate for the first time this year.

A U.S. inflation report showed consumer prices in August were 2.9% higher than a year earlier, a slight acceleration from July’s 2.7% increase but broadly in line with economists’ expectations. Traders said the combination of cooling labor indicators and steady inflation has shifted the balance toward easing, with many betting the Fed will prioritize a slowing job market when weighing a cut.

“What’s moving markets now isn’t just another rally — it’s the unmistakable shift of a dovish Fed tide, the kind that doesn’t rise in isolation but swells across oceans, lifting virtually every boat in every harbour,” Stephen Inness of SPI Asset Management wrote in a market commentary.

Some investors remain attentive to risks that could complicate the Fed’s decision. Officials have been cautious about cutting rates earlier in 2025 amid concerns that tariffs backed by President Donald Trump could push inflation higher. Lower interest rates can stoke inflationary pressures, and policymakers have signaled sensitivity to such dynamics even as they weigh the benefits of easing for growth.

On Wall Street, stocks that typically benefit from lower borrowing costs outperformed, including real estate owners and homebuilders. Energy markets were softer: benchmark U.S. crude fell 53 cents to $61.84 per barrel and Brent crude slipped 51 cents to $65.86 per barrel. Currency moves were modest, with the dollar climbing to 147.51 yen from 147.15 and the euro slipping to $1.1729 from $1.1740.

The cross-border rally underscores how U.S. monetary policy expectations continue to drive global equity flows and asset allocation. Analysts said the coming Federal Reserve decision and subsequent communication will be pivotal for markets, with investors watching for guidance on the size and timing of any rate move as well as the Fed’s assessment of inflation and labor market trends.

AP Business Writer Stan Choe contributed to this report.