How a US rate cut would ripple and wash through Asia

February’s US inflation report has given the Federal Reserve the space it needs to cut rates—and it may soon take that step. With year-on-year inflation slowing to 2.8%, down from 3% in January, and monthly price growth decelerating, the Fed is under increasing pressure to act.

If it does, the effects will reverberate across global markets, including Asia, where shifting monetary conditions will reshape economies, currencies, and investments. A potential rate cut from the world’s most powerful central bank would thus mark a turning point.

For more than a year, Asian economies have contended with a strong dollar, forcing central banks to tighten policy to support their currencies and curb inflation. If the Fed moves, that pressure will ease.

Policymakers in India, Indonesia and South Korea—previously hesitant to cut rates—could have room to loosen financial conditions to support growth.

A weaker dollar is one of the most immediate consequences. As rate differentials narrow, the greenback’s dominance will likely fade, lifting Asian currencies. The yen, which has been under strain due to policy divergence with the Fed, could strengthen.

The Chinese yuan, facing headwinds from Beijing’s economic transition, might stabilize. This shift could provide relief to import-heavy economies and improve trade balances.

For equity markets, the implications are significant. A Fed pivot could reignite investor appetite for emerging markets, leading to fresh inflows into Asian stocks. India and Southeast Asia, with their strong growth narratives, stand to benefit, while Hong Kong—long weighed down by outflows—could see a turnaround in sentiment.

Lower borrowing costs will support businesses, particularly those in technology and consumer