Stocks diverge after Powell says rate hike possible

NEW YORK (AFP/APP): Wall Street closed higher but European stock markets nudged down Friday as investors digested warnings by central bank chiefs that the battle against inflation was not over.

US stocks ended the day with the Dow up 1.2 percent and the tech-heavy Nasdaq up 2.1 percent after falling the previous day on the back of Federal Reserve Chair Jerome Powell saying that the US central bank “will not hesitate” to raise interest rates again if necessary.

But European markets were sluggish and ended in the red after European Central Bank President Christine Lagarde forecast a “resurgence” of inflation after it slowed sharply last month.

Speaking at a Financial Times event, Lagarde also said that the ECB will not start cutting rates for at least “the next couple of quarters.”

Data showing the UK economy stalled in the third quarter also weighed on London’s FTSE 100 index, which ended off 1.3 percent while Frankfurt and Paris lost almost one percent.

Both the Fed and ECB paused their rate-hike campaigns at their last meetings as consumer price rises have slowed, but they have suggested they would stay higher for longer as inflation remains above their two-percent targets.

Equities had been rallying since last week after Fed officials hinted that their long-running tightening cycle may be at an end.

But Powell told an International Monetary Fund conference Thursday that progress toward reaching two-percent inflation was “not assured.”

“If it becomes appropriate to tighten policy further, we will not hesitate to do so,” he said.

The yield on the 10-year Treasury note eased on Friday after US government bond yields rose a day earlier.