Lael Brainard, nominee to become vice-chair of the Federal Reserve, flagged a March rate hike, joining several other officials pushing for quick action to tame inflation

London (AFP) - Stock markets retreated Friday as a string of top Federal Reserve officials pressed their cases for fighting inflation, raising concerns the bank will embark on an aggressive campaign that could see four interest rate hikes this year.

London’s losses were capped and the British pound climbed as official data showed the UK economy recovered to above its pre-pandemic level in November.

“The FTSE 100 is demonstrating its relative resilience,” noted Victoria Scholar, head of investment at Interactive Investor.

She added, however, that “the next UK economic data readings are likely to lay bare the pressures from Omicron”.

Across the Atlantic, a pledge by Fed chief Jerome Powell earlier this week to rein in surging prices while also nurturing recovery in the world’s top economy provided a much-needed lift to investor sentiment and helped propel a rally across equities.

Data showing US inflation appeared to be stabilising added to the positivity and tempered fears about the end of the ultra-loose monetary policies, which have been key to a near two-year markets rally and global economic rebound.

But the mood darkened Thursday after the officials’ comments.

Lael Brainard, in her Senate hearing to become Powell’s deputy, said rates could rise as early as March, a move supported by Fed Bank of Philadelphia chief Patrick Harker, who also raised the possibility of another three before the end of the year.

The heads of the Chicago and St Louis Feds saw a similar number of hikes, while Raphael Bostic of Atlanta was open to a March move.

Minutes from the bank’s December policy meeting showed officials were keen to act quickly to tame prices, and speed up the taper of its massive bond-buying programme, then begin offloading its Treasury holdings – measures that have been used to keep rates at all-time lows.

“The possibility of four rate hikes this year is growing,” said Oanda senior market analyst Edward Moya.

“With four (policy board) voters now expecting to hike in March, financial markets can’t rule out it is possible that they could deliver five rate hikes this year.”

The Nasdaq led steep losses across Wall Street Thursday, dropping more than two percent, as tech firms are more susceptible to higher borrowing costs.

The selling continued on Friday in Asia and Europe, where official data showed Germany’s economy grew modestly last year, likely shrinking in the final months.

Wall Street fell further at the opening bell, with a lacklustre set of bank earnings failing to help sentiment.

Shares in JPMorgan Chase fell 6.2 percent after the bank reported a 14 percent drop in profits amid higher costs for employee compensation.

Sentiment was also hit by data showing retail sales droped 1.9 percent month-on-month in December.

“The key takeaway from the report is that total retail sales, which are not adjusted for inflation, contracted at their fastest pace since last February in the face of broadly higher prices,” said Patrick O’Hare at Briefing.com.

“This suggests that inflation is weighing down consumer spending,” he added.

Elsewhere, oil prices hit the highest levels for more than two months heading into the weekend on recovering demand for crude.

- Key figures around 1430 GMT -

London - FTSE 100: DOWN 0.4 percent at 7,534.85 points

Frankfurt - DAX: DOWN 1.0 percent at 15,876.46

Paris - CAC 40: DOWN 0.9 percent at 7,140.02

EURO STOXX 50: DOWN 1.1 percent at 4,269.04

New York - DOW: DOWN 0.8 percent at 35,824.04

Tokyo - Nikkei 225: DOWN 1.3 percent at 28,124.28 (close)

Hong Kong - Hang Seng Index: DOWN 0.2 percent at 24,383.32 (close)

Shanghai - Composite: DOWN 1.0 percent at 3,521.26 (close)

Euro/dollar: DOWN at $1.1436 from $1.1469

Pound/dollar: DOWN at $1.3692 from $1.3704

Euro/pound: UP at 83.51 pence from 83.50 pence

Dollar/yen: DOWN at 113.67 yen from 114.16 yen late Thursday

Brent North Sea crude: UP 0.7 percent at $85.14 per barrel

West Texas Intermediate: UP 0.6 percent at $82.63 per barrel

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