Stock markets mixed as traders contemplate more rate hikes

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Markets were mixed Friday, with traders struggling to build on the previous day’s rally as they come to terms with the likelihood that central banks will continue to raise interest rates to battle runaway inflation.

Equities surged across the region Thursday after the closely watched US consumer prices index eased more than expected in July, boosting hopes the Federal Reserve could slow down its pace of monetary tightening.

A similarly upbeat report on the producer price index, which can act as a guide to future CPI readings, provided further reason for optimism.

However, the feel-good vibe wore off in US trading after Fed officials lined up to warn that there was a long way to go before inflation, which is still sitting around four-decade highs, is tamed.

San Francisco Fed chief Mary Daly was the latest to bring markets down to earth, telling Bloomberg TV that the data were “significant in that they are saying that we’re seeing some improvement but they’re not victory”.

She added she would likely support a half-point hike at next month’s meeting, but was open to a third successive three-quarter-point lift if the data showed it was needed.

Daly also tempered hopes that the bank could begin cutting borrowing costs next year if prices are brought down, and said they would be held for a period before any reductions are made.

“I don’t see this hump-shaped part where we raise interest rates to really high rates and then bring them down,” she said. “I think of raising them to a level that we know is going to be appropriate and then holding them there for a while so that we continue to bring inflation down until we’re well and truly done.”—AFP

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