Stocks fall, dollar climbs on Fed rate warning

London, March 7 (AFP/APP): Stock markets tumbled, oil prices fell and the dollar firmed on Tuesday as Federal Reserve Chair Jerome Powell warned that the central bank could step up its rate hike campaign to fight inflation.

Investors had been eagerly awaiting fresh signals about when the Fed might pause its rate-tightening cycle.

But Powell said in prepared remarks before two days of testimony in Congress that the central bank “would be prepared to increase the pace of rate hikes” following strong economic data.

The Fed and other central banks worldwide have been hiking rates in efforts to tame decades-high inflation, but the policy could also tip economies into recession.

“A big sigh of disappointment has rippled through stock markets as investors once again are jolted by the realisation that the work of the Federal Reserve, in trying to tame wild inflation in the US, is far from over,” said Susannah Streeter, head of money and markets at Hargreaves Lansdown.

The Fed raised rates by 25 basis point last month after a half-point increase in December that followed a series of three-quarter hikes.
“We will stay the course until the job is done,” Powell said in the statement.

While analysts are betting on the United States and other major economies possibly avoiding recession despite inflation remaining elevated, there are concerns over China after the world’s second-biggest economy set a lower-than-expected target for its growth this year.

Powell said that strong employment, consumer spending, manufacturing production and inflation figures in January indicated a partial reversal of earlier softening trends, which was likely due to “unseasonably warm weather in January”.

Following Powell’s testimony, attention will switch to US jobs data for February that is due Friday.

That comes after January’s reading showed more than half a million new jobs were created, far more than expected.

Wall Street and European stock markets were down following Powell’s comments.

The greenback surged against the British pound, euro and yen as higher rates make the US currency more attractive to investors.
Oil prices fell by almost three percent.

“Central bankers often have a habit of talking in code. Not today. Jerome Powell couldn’t have been clearer — the Federal Reserve isn’t just willing to pump up US interest rates further, it’s planning to do so,” said Samuel Fuller, director of Financial Markets Online.

– Key figures around 1650 GMT –

New York – Dow: DOWN 1.0 percent at 33.098.18 points
London – FTSE 100: DOWN 0.1 percent at 7,919.48 (close)
Frankfurt – DAX: DOWN 0.6 percent at 15,559.53 (close)
Paris – CAC 40: DOWN 0.5 at 7,339.27 (close)
EURO STOXX 50: DOWN 0.8 percent at 4,278.96 (close)
Tokyo – Nikkei 225: UP 0.3 percent at 28,309.16 (close)
Hong Kong – Hang Seng Index: DOWN 0.3 percent at 20,534.48 (close)
Shanghai – Composite: DOWN 1.1 percent at 3,285.10 (close)
Euro/dollar: DOWN at $1.0582 from $1.0684 on Monday
Pound/dollar: DOWN at $1.1866 from $1.2023
Euro/pound: UP at 89.17 pence from 88.84 pence
Dollar/yen: UP at 136.84 yen from 135.95 yen
West Texas Intermediate: DOWN 2.9 percent at $78.16 per barrel
Brent North Sea crude: DOWN 2.5 percent at $84.03 per barrel