Australian shares close lower as Fed throws weight behind inflation combat

March 23 (Reuters) – Australian shares closed lower on Thursday as investors gauged another quarter-point rate hike by the U.S. Federal Reserve and its reiteration to remain tough on sticky inflation, putting the local central bank’s monetary stance under heightened focus.

The S&P/ASX 200 index ended 0.7% down at 6,968.60 points, led by losses in miners. The benchmark closed nearly 1% higher on Wednesday.

The Fed pencilled in a widely expected increase in borrowing costs, but recast its outlook to a more cautious stance following banking upheaval on both sides of the Atlantic, suggesting it was on the verge of pausing rate hikes.

However, Fed Chair Jerome Powell also hinted at one more rate increase in 2023, saying the central bank would do “enough” to tame inflation.

All eyes are now on the Reserve Bank of Australia’s policy meeting due in April, where a rate pause is said to be on the cards. Traders have priced out further hikes in the cash rate, and even a slim chance of a cut, but many analysts expect at least one more rate increase this year.

“The RBA seems to be mindful of its mandate and try to limit pain to one particular borrower,” said Henry Jennings, analyst and portfolio manager at Marcus Today.

“I think we could see them (RBA) pause in April ahead of the budget.”

US Treasury Secretary Janet Yellen told lawmakers that she had not considered “blanket insurance” for US banking deposits, further damaging sentiment.

Back home, miners hit their lowest since November 28 with a 1.2% drop, as a fall in iron prices dragged sector majors Rio Tinto and BHP Group lower.

Australian banking stocks shed 0.8%, with the “Big Four” lenders trading in the red.

Gold stocks rose 1.1% as bullion prices jumped after the US Fed signalled a rate pause. Gold is traditionally considered a hedge against inflation, and a low interest-rate environment makes non-yielding bullion a more attractive bet.

Tech stocks tracked their Wall Street peers lower, falling 1.1%.

New Zealand’s benchmark S&P/NZX 50 index  finished up 0.1% at 11,594.94.

(Reporting by Mehr Bedi in Bengaluru; Editing by Sherry Jacob-Phillips)