US stocks slide following tough Powell speech

An index of global stock markets fell on Friday, hurt by weakness on Wall Street after Federal Reserve Chair Jerome Powell said the US economy will need tight monetary policy “for some time” before inflation is under control.

Tight monetary policy “for some time” means slower growth, a weaker job market and “some pain” for households and businesses, Powell said in a speech to the Jackson Hole central banking conference in Wyoming.

“Reducing inflation is likely to require a sustained period of below-trend growth. Moreover, there will very likely be some softening of labour market conditions,” Powell said.

He did not hint at what the Fed might do at its upcoming Sept. 20-21 policy meeting. Officials are expected to approve either a 50 basis points or 75 basis points rate increase.

Interest rate futures tied to expectations about Fed policy fell on Friday in the moments after Powell’s speech, reflecting an increase in the probability that the Fed would deliver a third straight 75-basis-point rate hike at its next meeting.

“It was hawkish as expected. Powell’s message is clear, the Fed is far from done in its fight against inflation,” said Antoine Bouvet, senior rates strategist at ING in London.

MSCI’s gauge of stocks across the globe shed 1.16%.

On Wall Street, main indexes fell after Powell’s comments, with rate-sensitive banks and high-growth stocks that tend to outperform in a low-interest-rate environment, coming under pressure.

The Dow Jones Industrial Average fell 417.11 points, or 1.25%, to 32,874.67, the S&P 500 lost 64.37 points, or 1.53%, to 4,134.75 and the Nasdaq Composite dropped 237.85 points, or 1.88%, to 12,401.42.

European stocks fell as investors fretted over downbeat German consumer sentiment data due to rising energy costs.

Consumer morale in the euro zone’s two biggest economies diverged starkly in August as French consumers benefited from fresh government measures while concerns over rising energy bills hit their German counterparts, surveys showed on Friday.

The pan-European STOXX 600 index lost 1.54%.

Spot gold was at $1,744.79 per ounce, down 0.78%.