Stocks fall, dollar climbs on Fed rate warning

Stock markets tumbled, oil prices fell and the dollar firmed on Tuesday as Federal Reserve Chair Jerome Powell warned that the central bank could step up its rate hike campaign to fight inflation.

Investors had been eagerly awaiting fresh signals about when the Fed might pause its rate-tightening cycle.

But Powell said in prepared remarks before two days of testimony in Congress that the central bank "would be prepared to increase the pace of rate hikes" following strong economic data.

The Fed and other central banks worldwide have been hiking rates in efforts to tame decades-high inflation, but the policy could also tip economies into recession.

"A big sigh of disappointment has rippled through stock markets as investors once again are jolted by the realization that the work of the Federal Reserve, in trying to tame wild inflation in the US, is far from over," said Susannah Streeter, head of money and markets at Hargreaves Lansdown.

The Fed raised rates by 25 basis points last month after a half-point increase in December that followed a series of three-quarter-point hikes.

"We will stay the course until the job is done," Powell said in his remarks.

He added that strong employment, consumer spending, manufacturing production and inflation figures in January indicated a partial reversal of earlier softening trends. This was likely due to "unseasonably warm weather in January."

Following Powell's testimony, attention will switch to US jobs data for February that is due Friday.

That comes after January's reading showed more than half a million new jobs were created, far more than expected.

Wall Street and European stock markets fell after Powell's comments, with the Dow down around 575 points, or 1.7 percent.

The greenback surged against the British pound, euro and yen as higher rates make the US currency more attractive to investors.

Oil prices -- which are denominated in dollars -- fell by more than three percent, reacting in part to the appreciation of the US currency.

Quincy Krosby of LPL Financial said Powell is preparing the market for a more aggressive response depending on key jobs and pricing data in the coming days.

Powell "has a mandate to maintain price stability, and that is what he is focused on," Krosby said. "Everything he has said points to the fact that he is going to do what he has to do."

- Key figures around 2150 GMT -

New York - Dow: DOWN 1.7 percent at 32,856.46 (close)

New York - S&P 500: DOWN 1.5 percent at 3,986.37 (close)

New York - Nasdaq: DOWN 1.3 percent at 11,530.33 (close)

London - FTSE 100: DOWN 0.1 percent at 7,919.48 (close)

Frankfurt - DAX: DOWN 0.6 percent at 15,559.53 (close)

Paris - CAC 40: DOWN 0.5 at 7,339.27 (close)

EURO STOXX 50: DOWN 0.8 percent at 4,278.96 (close)

Tokyo - Nikkei 225: UP 0.3 percent at 28,309.16 (close)

Hong Kong - Hang Seng Index: DOWN 0.3 percent at 20,534.48 (close)

Shanghai - Composite: DOWN 1.1 percent at 3,285.10 (close)

Euro/dollar: DOWN at $1.0552 from $1.0681 on Monday

Pound/dollar: DOWN at $1.1827 from $1.2025

Euro/pound: UP at 89.19 pence from 88.82 pence

Dollar/yen: UP at 137.13 yen from 135.93 yen

West Texas Intermediate: DOWN 3.6 percent at $77.58 per barrel

Brent North Sea crude: DOWN 3.4 percent at $83.29 per barrel