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HONG KONG — Asian and European markets sank on Thursday and the dollar rallied after the Federal Reserve (Fed) unveiled a third straight jumbo interest rate hike, said more were in the pipeline and warned the battle against inflation was straining the US economy.

While the three-quarter-point rise was widely expected, there was some surprise at the central bank's forecast that borrowing costs would likely be held above 4 per cent throughout next year.

Fed boss Jerome Powell reiterated his determination to focus on bringing down inflation — which is at a four-decade high — and accepted that the campaign would hit Americans hard.

"We have got to get inflation behind us," Powell said after a two-day meeting of the Fed policy committee. "I wish there were a painless way to do that. There isn't."

He added that "the historical record cautions strongly against prematurely loosening policy" and the Fed would "keep at it until the job is done".

All three main indexes on Wall Street tumbled Wednesday as traders contemplated an era of higher-for-longer rates, which could hit companies' bottom lines.

Asia followed suit, with Hong Kong down at an 11-year low — while Tokyo, Shanghai, Seoul, Singapore, Mumbai, Taipei and Manila also down.

London, Paris and Frankfurt extended the losses in early trade.

However, the dollar continued its strong march higher, striking a fresh 24-year high of 145.90 yen, which prompted the government to embark on a rare intervention to protect its currency.

The US Fed has for months tried to walk a fine line between fighting soaring prices and trying to keep the economy from contracting, but officials accept the chances of success are narrow.

"With the new rate projections, the Fed is engineering a hard landing — a soft landing is almost out of the question," said Seema Shah, of Principal Global Investors.

"Jerome Powell almost channelled his inner Paul Volcker... talking about the forceful and rapid steps the Fed has taken, and is likely to continue taking, as it attempts to stamp out painful inflation pressures and ward off an even worse scenario later down the line."

Volcker used aggressive measures to quell runaway prices in the 1980s, when inflation was last as high as it is now.

Commentators are now betting on a fourth straight 75-basis-point rate hike at the next Fed meeting in November.

All three main indexes on Wall Street tumbled Wednesday as traders contemplated an era of higher-for-longer rates, which could hit companies' bottom lines.

"This meeting once again demonstrates that the Fed is willing to do what is necessary to bring inflation under control. It will slow demand by keeping rates higher for longer — even if this means growth and jobs are lost," said Christian Scherrmann, of asset management firm DWS.

"The current view of the central bankers is still that this will cause a slowdown, but not a recession. We fully agree that bitter medicine to win back price stability is necessary. But we fear its side-effects will be harsher than the Fed is currently projecting."

Fidelity International's Anna Stupnytska said a long-hoped-for change of direction from the Fed "now seems further away", though added that a significant tightening of monetary financial conditions could see an earlier pause in the rate hikes.

The Swiss central bank followed up Thursday with a 0.75 percentage point hike and Norway lifted its rate to an 11-year high. Indonesia and the Philippines also tightened policy.

Investors are now preparing for a large move from the Bank of England later in the day.

Still, the Bank of Japan decided not to shift from its ultra-loose measures owing to its determination to kickstart the country's torpid economy. The decision leaves it as the only major central bank with negative rates, a policy that has sent the yen plunging 20 per cent this year.

However, the currency got a bounce after the finance ministry stepped into the currency markets, pushing the dollar back below 143 yen.

Other currencies were also under pressure, with the euro wallowing at a 20-year low and sterling touching a fresh 37-year nadir of $1.1221.

The greenback was also at multiyear highs on the South Korean won, Chinese yuan, Australian dollar and Canadian dollar, among others.

Oil prices edged up after a rollercoaster on Wednesday.

Both contracts spiked in reaction to President Vladimir Putin's announcement of a partial mobilisation of the Russian army and a veiled threat to use nuclear weapons against the West.

But they soon retreated as investors once again turned to the likely impact on demand from an expected recession across world economies.

WASHINGTON — The Federal Reserve (Fed) opened its second day of deliberations on Wednesday that were expected to produce another big increase in interest rates in a bid to cool the economy and to tamp down the highest inflation in 40 years, but recession fears were still there.

Soaring prices are putting the squeeze on American families and businesses and already have become a political liability for President Joe Biden, as he faces midterm congressional elections in early November.

But a contraction of the world's largest economy would be a more damaging blow to Biden, to the Fed's credibility and the world at large.

Economist Diane Swonk of KPMG warned the central bank will come under increasing pressure, especially if unemployment begins to rise, and Fed officials "will become political pinatas".

Fed Chair Jerome Powell has made it clear that officials will continue to act aggressively to cool the economy and avoid a repeat of the 1970s and early 1980s, the last time US inflation got out of control.

It took tough action — and a recession — to finally bring prices down in the 1980s, and the Fed is unwilling to give up its hard-won, inflation-fighting credibility.

Many economists were expecting a third straight three-quarter point rate hike to come as a result of the meeting, which would be an unprecedented action since that era. 

Powell and other central bankers have been sending the same message: A downturn is better than continued high inflation given the pain that would inflict, especially on those least able to withstand it.

"Since inflation began to accelerate in early 2021, Fed officials have been overly optimistic that it would quickly recede to the central bank's 2 per cent target,” economists Mickey Levy and Andrew Levin wrote in The Wall Street Journal.

"The economy now faces a serious risk of persistent high inflation."

The Fed's policy-setting Federal Open Market Committee (FOMC) was scheduled to announce its decision at 18:00 GMT on Wednesday.

Powell's press conference after the meeting would be closely scrutinised for clues on how much more the Fed would have to do before declaring victory in the inflation fight.

Inflation is a global phenomenon amid the Russian war in Ukraine on top of global supply chain snarls and COVID lockdowns in China, and other major central banks are taking action as well.

US policymakers have the luxury of a strong job market, and low unemployment, which gives it some leeway to tackle high prices.

Even so, many economists say at least a short period of negative gross domestic product in the first half of 2023 will be needed before inflation starts coming down.

Despite a welcome drop in gasoline prices at the pump in recent weeks, the disappointing consumer price report for August showed widespread increases. 

But Ian Shepherdson of Pantheon Macroeconomics, who believes inflation has peaked, said incomes are growing amid rising wages, which bodes well for the outlook.

"The US economy is not in recession or headed there," he said in an analysis.

The Fed has front-loaded its rate hikes, cranking up the benchmark lending rate four times this year, including two straight three-quarter-point hikes in June and July.

The aim is to raise the cost of borrowing and cool demand, and it is having an impact: The housing market has slowed as mortgage rates have surged.

Recent statements from Fed officials indicate more rate hikes were coming, and no cuts until inflation was under control — dousing hopes that had built up in markets following the July policy meeting.

"The irony here is that just as the Fed is ratcheting-up the anti-inflation rhetoric to fever-pitch, the forces needed to drive down inflation over the next year are now in place," Shepherdson said.

Moreover, the FOMC will release the quarterly forecasts from members, which will show how they feel about the direction of the economy and the impact of the policy moves, and how soon inflation will come down.

MANILA — The Asian Development Bank (ADB) on Wednesday cut its 2022 growth forecast for developing Asia, with crippling COVID-19 lockdowns in China, conflict in Ukraine and efforts to combat inflation dragging on the region.

While easing pandemic restrictions had spurred consumer spending and investment in the region, the Philippines-based bank warned of "global headwinds" to the recovery as food and fuel prices soared and central banks hiked interest rates.

As a result, the bank slashed its 2022 growth forecast for developing Asia — which refers to the 46 members of the ADB, stretching from the Cook Islands in the Pacific to Kazakhstan in Central Asia — to 4.3 per cent.

That compares with its April forecast of 5.2 per cent growth. The region grew by 7 per cent in 2021.

ADB chief economist Albert Park warned "risks loom large" for the region's outlook and urged governments to remain "vigilant". 

"A significant downturn in the world economy would severely undermine demand for the region's exports," Park said.

"Stronger-than-expected monetary tightening in advanced economies could lead to financial instability. And growth in the PRC [China] faces challenges from recurrent lockdowns and a weak property sector."

China's growth forecast for 2022 was reduced to 3.3 per cent from 5 per cent, as Beijing pursues a zero-COVID strategy that has devastated the world's second-largest economy.

Chinese officials are under pressure to curb even the smallest virus outbreaks swiftly, ahead of a key political meeting in October where President Xi Jinping is expected to secure an unprecedented third term. 

Officials have imposed targeted lockdowns and travel restrictions, disrupting businesses and forcing millions of people to stay home.

Park said the slowdown was "weighing heavily" on the region's projections. 

Excluding China from the overall forecast, the rest of developing Asia will grow 5.3 per cent.

"For the first time in more than three decades, the rest of developing Asia will grow faster than [China]," the ADB noted.

The bank also raised its inflation forecast to 4.5 per cent from 3.7 per cent, as Russia's invasion of Ukraine and supply chain disruptions drive up food and energy prices.

While monetary policymakers in the region have hiked interest rates, some central banks may need to do more to tame inflation and prevent capital outflows, it said.

PARIS — Central banks worldwide are using aggressive interest rate hikes to lasso galloping inflation, at the risk of pulling down the global economy with it.

The US Federal Reserve and its counterparts in Europe and most emerging economies have been raising rates this year as consumer prices have soared to decades-high levels.

While higher rates aim to tame runaway inflation by slowing economic activity, they can cause a recession if borrowing costs become too steep for businesses and individuals.

"It reminds me what used to happen in the Middle Ages: Bloodletting," Nobel laureate economist Joseph Stiglitz said, referring to the belief at the time that patients could be cured from illnesses by making them bleed.

"When they let out the blood, the patient didn't recover, usually, unless a miracle happened. And so they let out more blood and the patient got sicker and sicker," Stiglitz said.

"I am afraid that central banks will do the same thing now," he warned.

The Federal Reserve will announce its latest monetary policy decision on Wednesday, with investors fearing that after two straight rate increases of 0.75 percentage points, the bank could go for a full point this time.

The Bank of England and its peers in South Africa, Sweden and Switzerland are also expected to continue to tighten their monetary policies at their own meetings this week.

'Transitory' no more 

Consumer prices began to rise due to bottlenecks in supply chains as companies struggled to keep up with a pick-up in demand after economies began to emerge from COVID lockdowns.

After repeatedly describing inflation as "transitory" last year, the Federal Reserve and the European Central Bank (ECB) changed their tune this year as Russia's invasion of Ukraine caused energy and food prices to soar.

Central banks have since raised hikes in an almost synchronised way, raising concerns that their late and aggressive reactions could now do more harm than good.

"Did the economy really need this to slow down?" said Eric Dor, director of economic studies at the IESEG school of management in France.

"Inflation itself caused activity to slow down," Dor said. "Households are losing their purchasing power, wages increases are lower than the inflation rate and [inflation] put a brake on consumption."

ECB President Christine Lagarde acknowledged the possible hit to the economy last week.

"Will it cause a little loss of growth? It's possible," she said on Friday at a conference in Paris. "It is a risk that we have to take after weighing it well."

Earlier this month, US Treasury Secretary Janet Yellen said there is "certainly a risk" of an economic downturn.

But she noted the US job market is "exceptionally strong" with nearly two vacancies for every worker looking for a job.

'Wrong prescription' 

The United States is still haunted by the spectre of inflation that lasted for almost a decade in the 1970s and 1980s.

A World Bank report released last week said a worldwide slowdown accompanied by tighter monetary policies could trigger a global recession next year, with sharp declines in emerging and developing countries in particular.

While economists debate whether the cure for inflation might be worse than the disease, some disagree over the reasons behind the soaring prices.

Stiglitz said demand is not the cause.

"Central banks around the world are pretending or acting as if it was demand that created inflation," he said, noting that higher rates will neither produce more energy nor food or help ease the global supply chain crisis.

"Using a recipe for the wrong diagnosis is getting the wrong prescription," he said, adding that higher rates will raise the cost of making the investments needed to relieve the bottlenecks and raise rents in the United States.

PARIS — Stock markets dropped again on Monday, extending last week's rout as investors brace for another big rate hike by the US Federal Reserve (Fed) that they fear could drag down the global economy.

Wall Street opened lower, with the Dow dropping 0.6 per cent.

The Paris CAC 40 and Frankfurt DAX were down in afternoon trading while Asian indices mostly closed lower. London was closed for the funeral of Queen Elizabeth II. 

"Traders are worried that they are going to hear more hawkish stance from central banks this week" which would "cut economic activity further", AvaTrade analyst Naeem Aslam said.

The Fed will announce its latest monetary policy decision on Wednesday as it seeks to tame decades-high inflation.

With recent data showing US inflation rooted at four-decade highs, investors are increasingly pessimistic about the outlook for the global economy.

Central banks raise interest rates to cool inflation, but higher borrowing costs also slow down economic activity.

Disappointing US inflation figures last week unnerved traders and ramped up bets for a third successive 0.75 percentage-point rise, while some have predicted a whole percentage point move.

Policymakers, including Fed Chairman Jerome Powell, have repeatedly said their ultimate aim is to bring inflation under control, even if that means sending the economy into recession.

"We're expecting a sharp interest rate increase and therefore a clear signal against galloping inflation," said Tim Emden, an independent market analyst.

Patrick O'Hare at Briefing.com said that a good question is why stock markets are still falling when they already took a wallop last week on the prospect of higher interest rates triggering an economic slump.

"The reason being is that the market doesn't have a comforting sense where the end rate will be, how long the end rate will remain the end rate and how low earnings estimates will go," he said.

The Bank of England and its peer in Japan are also holding key meetings this week, with the pound and the yen feeling the pressure from a strong dollar.

Yen under pressure 

Asian equity investors continued the selling on Monday.

Hong Kong closed down one per cent, even after reports that the city's government was considering ending mandatory hotel quarantine for incoming travellers.

Shanghai was also down despite news that megacity Chengdu was ending a two-week COVID-19 lockdown that saw 21 million people affected.

Tokyo was closed for a holiday.

The prospect of more big Fed rate hikes is also keeping the dollar at multidecade highs against its major peers, with the yen feeling most of the pressure as the Bank of Japan (BoJ) refuses to tighten policy.

The Japanese unit last week hit a fresh 24-year low of 144.99 to the dollar, though it has bounced slightly after comments from BoJ officials that signalled they were ready to intervene to provide support.

Oil prices tumbled around 3 per cent despite the news out of Chengdu as demand fears are fuelled by the growing fear of recession around the world.

"The market's growth concerns, meanwhile, are being fed by the inverted yield curve and are manifesting themselves in the commodities market," O'Hare said.

An inverted yield curve is the unusual situation where short-term interest rates are higher than long-term interest rates, and is often a signal of an impending recession.