Wall Street stocks were muted on Wednesday as the chairman of the Federal Reserve and other central bank chiefs warned that interest rates may need to rise further to curb inflation.
The benchmark S&P 500 closed the day largely unchanged, while the tech-heavy Nasdaq Composite rose 0.3% in a volatile session.
Stock market moves came after Fed Chairman Jay Powell and the heads of the European Central Bank and the Bank of England said more action may be needed to ease rapid price growth, despite concerns that monetary tightening would led to an economic slowdown.
At a closely watched conference in Sintra, Portugal, Powell said that “while the policy is restrictive, it may not be restrictive enough, and it hasn’t been restrictive enough for long.”
The U.S. central bank has previously indicated it is likely to raise the benchmark federal funds rate two more times before the end of 2023, above its current target range of between 5% and 5.25%.
The central bank’s decision will be informed by Friday’s eurozone inflation report, which is expected to show price growth slowed to 5.6% in the year to June, down from 6.1% a month earlier. early, according to economists polled by Reuters.
Elsewhere in U.S. stocks, chipmaker Nvidia fell 1.8 percent after reports the U.S. is considering new restrictions on exports to China of chips that can be used in artificial intelligence.
In government bond markets, the yield on the 10-year U.S. Treasury note fell 0.06 percentage point to 3.71 percent as the price of the benchmark debt instrument rose.
The policy-sensitive two-year yield lost 0.05 percentage points to 4.71 percent. This has helped perpetuate the “yield curve inversion” phenomenon, the gap between short-term and long-term yields that persists for months and is traditionally seen as a harbinger of recession.
The dollar rose 0.5% against a basket of six other currencies, while the pound fell 0.9% against the greenback – its biggest daily drop in a month – to $1.2637 as traders continued to grapple with the effects of the suspension of growth the larger-than-expected increase in the Bank of England’s interest rate to 5 percent.
Themos Fiotakis, head of FX research at Barclays, said sterling had risen “too much” ahead of the central bank’s last meeting and was “susceptible to a slight sell-off”.
Europe’s pan-European Stoxx 600 ended the day 0.7% higher, while France’s Cac 40 added 1% and Germany’s Dax gained 0.6%.
Earlier in the day, Australia’s S&P/ASX 200 rose 1.1% after official data showed inflation cooled at a faster-than-expected pace in May, raising the prospect of a pause in interest rate hikes by the Reserve Bank of Australia.
Trading in Asia was mixed, with China’s CSI 300 falling 0.1 percent while Hong Kong’s Hang Seng added 0.1 percent. Japan’s Topix rose 2 percent, lifted by strong gains in the technology sector.