San Francisco Frontiers - Stock gains fizzle after Powell speech

Both European and US stocks had been higher before Powell's speech at the annual symposium of central bankers and business leaders in Jackson Hole, Wyoming.

Powell acknowledged that inflation has come down considerably -- it came in at 3.2 percent in July -- but said clearly that the Fed considers inflation still to be too high and remains ready to act to bring it down to its two percent target.

"We are prepared to raise rates further if appropriate, and intend to hold policy at a restrictive level until we are confident that inflation is moving sustainably down toward our objective," said Powell.

"Last year, Powell used his Jackson Hole speech to lay the hammer down on inflation," said analyst Callie Cox at eToro brokerage.

"This year, he was a little softer on the economy –- but he’s not ready to give up the hammer just yet," she added.

While Powell’s comments weren’t exactly new, Cox said he "struck a more serious tone" and "made it clear that the job isn’t done yet" on inflation and that the Fed is ready to raise interest rates further and keep them there if needed.

After 11 rate hikes in less than 18 months, the US benchmark lending rate now sits at a range between 5.25 and 5.5 percent -- its highest level for 22 years.

While the US economy has so far remained resilient to higher interest rates, growth has been slowing and both companies and consumers have been feeling the impact.

Investors have been increasingly hoping that Fed policymakers might hold off on further hikes as their impact on the economy is not immediate, and that rates may come down early next year.

"While another rate hike in the cycle is still far from certain -- I'm still of the view they're done -- traders are increasingly accepting that they will likely stay there longer than they've expected at any point in the tightening cycle," said Craig Erlam, senior market analyst at Oanda trading platform.

The gains on Wall Street evaporated after Powell's comments but the blue-chip Dow then recovered most of its gains, while the broader S&P 500 edged higher and the tech-heavy Nasdaq was flat.

The dollar rose against its main rival currencies on the prospect of further rate increases.

European stocks gave up most of their gains as well, but closed higher.

European Central Bank head Christine Lagarde is also due to speak later in the day, with a string of poor economic data boosting expectations that it could pause its rate hikes.

Both the Fed and the ECB have adopted a "data-dependent" approach to monetary policy.

That has led to reacting to economic indicators in light of their impact on inflation, often leading to a "good news is bad news" reaction with healthy data seen as likely pressuring officials to hike interest rates further and leading to a sell off of stocks.

A string of positive readings on the US economy and jobs have weighed on equities this month as investors worried the Fed might hike rates again in September or indicate rates will stay higher for longer.

- Key figures around 1530 GMT -

New York - Dow: UP 0.4 percent at 34,231.57 points

London - FTSE 100: UP less than 0.1 percent at 7,338.58 (close)

Frankfurt - DAX: UP less than 0.1 percent at 15,631.82 (close)

Paris - CAC 40: UP 0.2 percent at 7,229.60 (close)

EURO STOXX 50: UP 0.1 percent at 4,236.25 (close)

Tokyo - Nikkei 225: DOWN 2.1 percent at 31,624.28 (close)

Hong Kong - Hang Seng Index: DOWN 1.4 percent at 17,956.38 (close)

Shanghai - Composite: DOWN 0.6 percent at 3,064.07 (close)

Euro/dollar: DOWN at $1.0785 from $1.0811 on Thursday

Pound/dollar: DOWN at $1.2571 from $1.2596

Euro/pound: DOWN at 85.78 pence from 85.81 pence

Dollar/yen: UP at 146.31 yen from 145.80 yen

West Texas Intermediate: UP 0.5 percent at $79.57 per barrel

Brent North Sea crude: UP 0.8 percent at $84.00 per barrel

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