Stocks tread water after shock over Powell rate warning

Equities have slid on the prospect of US interest rates going even higher than expected. ©AFP

London (AFP) - Stock markets sputtered on Wednesday after Federal Reserve chief Jerome Powell triggered a rout a day earlier by warning that higher interest rate hikes might be needed to tame stubborn inflation.

Wall Street's main indices were mixed, with the S&P 500 and Nasdaq Composite edging higher while the Dow dipped.

In Europe, both London and Frankfurt mustered small gains, while Paris slid.

Asian indices mostly ended lower after Powell on Tuesday dealt a hammer blow to faint hopes that the US central bank could pause its rate tightening soon.

Powell told US lawmakers that the "ultimate level of interest rates is likely to be higher than previously anticipated" as economic data had come in stronger than expected.

Powell addressed US lawmakers again on Wednesday, saying Fed policymakers would look at all the available data before making a decision.

"As an exercise in stating the obvious, the comments appear to have helped push markets to their highs of the day, bringing about a modest rebound into the close, however, markets still appear very much range-bound, with no clear direction..." said market analyst Michael Hewson at CMC Markets.

Fresh data on Wednesday showed that US employers stepped up their pace of hiring in February -- another indication that more effort might be needed to cool the world's biggest economy.

European Central Bank president Christine Lagarde, whose institution has also been hiking rates to control inflation, made her own pledge on Wednesday to "do whatever it takes" to restore price stability.

"The stock market had the interest rate jitters yesterday and it has been slow to shake them off today," said Briefing.com analyst Patrick O'Hare.

"There is burgeoning concern that the continued rate hikes will indeed invite a recession down the road," O'Hare said."The uncertainty for many is, just how far down the road might that be?"

Investors are now betting on the Fed to lift rates 50 basis points at its meeting this month.

That would be twice as much as its last gathering.

US inflation is running above six percent and while that is down from multi-decade peaks seen last year, it is still well above the bank's target of two percent.

Traders eagerly await US monthly jobs data due Friday.

The dollar fell back against the euro, pound and yen after hitting multi-month highs.

The oil market fell again Wednesday after tumbling more than three percent in the wake of Powell's comments.

A strong US currency weighs on dollar-denominated crude prices, which become more expensive for customers purchasing in other currencies.