Asian and European markets fell Friday on the prospect of more interest rate hikes after two Federal Reserve officials hinted at ramping up their institution’s monetary tightening campaign in the face of stubbornly high US inflation.
Data showing the US wholesale price index eased slightly last month but rose more than forecast, reinforcing the view that the central bank still has much more work to do to defeat inflation — even after almost a year of lifting borrowing costs.
The reading came as other figures from the United States showed consumer prices came down slower than expected and retail sales surged, while job creation smashed estimates and unemployment claims came in on the soft side.
Markets last month rallied on hopes the Fed would be able to pause its hiking cycle soon — or even cut rates by the end of the year — but now there is a realisation that more increases are needed to get inflation back to the bank’s two percent target.
“You will not sustainably get to two percent inflation when you have a labour market that is this tight,” Steve Chiavarone, of Federated Hermes, told Bloomberg News. “It is so completely out of whack.”
The tighter policy environment has renewed fears on trading floors that the US economy will tip into recession.
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