US stocks edged lower in choppy trading on Friday as Federal Reserve chair Jay Powell emphasised his resolve to curb inflation with aggressive interest rate rises in a widely anticipated speech.
Wall Street and European equities dropped in the minutes after Powell began his address at the annual Jackson Hole central banking summit, but then rapidly cut their losses in volatile action.
The Fed is trying to fight against the most vigorous spell of consumer price increases in about four decades, with inflation clocking in at 8.5 per cent in July. But policymakers are also trying to avoid tipping the world’s largest economy into a deep recession with their programme of aggressive rate rises.
On Friday, Powell said the Fed “must keep at it until the job is done” as he delivered his most hawkish message to date on the US central bank’s determination to tame rapid price growth.
Wall Street’s S&P 500 gauge and the technology-heavy Nasdaq Composite fell 0.1 per cent each as Powell addressed the economic symposium, while the regional Europe Stoxx 600 share index lost 0.5 per cent.
Investors said a hawkish approach would force markets to prepare for a longer period of higher rates. Powell would “make markets open for the possibility that this could take longer and involve higher interest rates than they have been contemplating”, said Thomas Thygesen, head of strategy at SEB Research.
Already, predictions of tighter policy and higher borrowing costs have started to weigh on investor sentiment in corporate debt markets.
The difference in yield between high-yield US corporate bonds and ultra-low-risk government debt has widened in recent weeks, rising from 4.2 percentage points on August 11 to 4.6 percentage points at the close of trade on Thursday, according to an Ice Data Services index.
Junk bond funds recorded $4.8bn in outflows in the week to Wednesday, marking the biggest redemption in nine weeks, according to EPFR data collated by BofA.