US Federal Reserve's tough talk on interest rates drags down stock markets

Economic data is a sign the central bank will not hit brakes any time soon

A job advert in a cafe in Manhattan, New York. Jobless claims in the US fell marginally to 194,000 in the week ending February 11, from 195,000 a week earlier, indicating the labour market was still tight. ReutersShow less

Global stock markets ended the week down as investors became worried that new inflation concerns would lead to more aggressive monetary policy decisions from central banks.

Economic data in the US showed that inflation cooled in January but remains at a high level, the job market was still tight and consumer spending was strong, all of which are signs that the Federal Reserve will not stop rate rises anytime soon.

Jobless claims in the world’s largest economy fell marginally to 194,000 in the week ending February 11, from 195,000 a week earlier.

Latest reports also showed that US producer price inflation rose more than expected on a monthly basis, while the core PPI eased less than expected.

"So that crushed the idea that the economy is strong, without however fuelling the Fed cut expectations, as the slowdown in inflation needs to be addressed for some more time," Ipek Ozkardeskaya, senior analyst at Swissquote Bank, wrote in a note.

Among major global indices, only the Dow Jones Industrial Average posted a gain, settling 0.4 per cent higher at the close of trading in New York on Friday.

The S&P 500 shed 0.3 per cent, resulting in a weekly loss. It was weighed down by declines in tech companies Microsoft and Nvidia, which declined 1.6 per cent and 2.8 per cent, respectively. The tech-heavy Nasdaq Composite dropped 0.6 per cent.

For the week, the S&P 500 was down 0.3 per cent, the Dow was lower by 0.1 per cent and the Nasdaq off by 0.6 per cent. Year-to-date, however, the indices are still up by 6.2 per cent, 2 per cent and 12.6 per cent, respectively.

Markets started the year well, as investors pinned their hopes that cooling inflation would convince the Fed to ease up on interest rates.

However, stocks have gone down a bumpy road this month, as recent economic reports suggest that inflation was not slowing down as quickly as expected, raising further rate rise concerns among investors.

The Fed raised interest rates this month — the eighth time since 2022 — by 25-basis points, while indicating that more increases were to come.

That put the US central bank's target range at between 4.5 per cent and 4.75 per cent, which is about 50 basis points away from its end-of-year projection of 5.1 per cent.

Both Loretta Mester, president of the Cleveland Fed, and James Bullard, president of the St Louis Fed, said they would back a 50 bps rises if they could vote in the US central bank's coming Federal Open Market Committee meetings.

Those comments were the "last nails in the coffin", Mr Ozkardeskaya said.

In Europe, major indices fell at the close. London's FTSE 100 inched down 0.1 per cent, while Frankfurt's DAX and Paris's CAC 40 both declined 0.3 per cent.

Earlier in Asia, stock markets also tumbled. Tokyo's Nikkei 225 dipped 0.7 per cent, Hong Kong's Hang Seng index dropped 1.3 per cent, and the Shanghai Composite shed 0.8 per cent.

In commodities, oil prices posted weekly losses as strong US economic data sparked concerns of further interest rate increases, which in turn could further slow the economy and lead to a slump in crude demand.

Brent shed $2.14 to settle 2.51 per cent lower at $83 a barrel, while West Texas Intermediate, lost 2.74 per cent, or $2.15, to close at $76.34 a barrel, at the close of trading on Friday.

"Oil prices returned to negative territory while concerns about monetary policy and a stronger dollar affected expectations," said Farah Mourad, a senior market analyst at XTB Mena.

"However, the market could still see some upwards movements due to Chinese demand and lower Russian production levels."

Gold, meanwhile, ended higher on Friday but still posted its third straight weekly drop, dragged by a stronger dollar and bond yields on the tough talk from Fed officials.

Gold for April delivery inched down about 0.1 per cent, or $1.60, to $1,850.20 an ounce at the close of trading.