Equities, dollar rise as Fed officials downplay inflation concerns

A man counts U.S. dollar banknotes at a currency exchange shop in Beirut

By Chibuike Oguh

NEW YORK (Reuters) -Global equity markets gained and the U.S. dollar rallied against major currencies on Wednesday for the first time this week as Federal Reserve officials continued to downplay prospects of rising inflation.

Fed vice chair for supervision Randal Quarles signaled the U.S. central bank’s plans to open talks on easing its bond buying program as the economy roars ahead and prices rise. On Tuesday, vice chair Richard Clarida said the Fed could curb inflation and engineer a “soft landing” without throwing the economic recovery off track.

On Monday, Fed Board Governor Lael Brainard and James Bullard, president of the St. Louis Fed, reiterated the dovish monetary policy stance.

The dollar index was up 0.392%, while the benchmark yields on 10-year U.S. Treasuries slipped to 1.557%, from 1.564% late on Tuesday.

“The Fed has really been pushing its view on inflation, but with regards to bond tapering investors are concerned they will allow the economy run hot,” said Charlie Ripley, senior investment strategist for Allianz Investment Management.

MSCI’s broadest index of world stocks rose 0.18% to 708.52. European stocks were flat below a record peak set on Tuesday.

The comments from multiple Fed officials reflect a shifting tone at the central bank. A month ago, Fed Chair Jerome Powell said it was “not yet” time to contemplate discussion of policy tapering or slowing the pace of asset purchases. More recently policymakers have acknowledged they are closer to debating when to scale back crisis support for the U.S. economy.

On Wall Street, all three main indexes closed higher driven by consumer discretionary, communication services and financial sectors.

The Dow Jones Industrial Average rose 0.03%, to 34,323.05, the S&P 500 gained 0.19%, to 4,195.99 and the Nasdaq Composite added 0.59%, to 13,738.00.

“The Fed is still putting a lot of liquidity into the system and when the economy is running hot that’s got a lot of people thinking that they might make a policy mistake,” Ripley said.

Overnight in Asia, MSCI’s broadest index of Asia-Pacific shares outside Japan rose 0.45% to over two-week highs, while Tokyo’s Nikkei advanced 0.3%.

Emerging markets stocks strengthened as stronger economic growth numbers in Mexico lifted the peso, boosting hopes the country is on track to recover from its sharpest economic contraction since the 1930s.

MSCI’s index of emerging market stocks rose 0.48%.

Gold prices fell below $1,900 per ounce, its appeal dimmed by a rebounding dollar and U.S. Treasury yields.

Spot gold shed 0.17% to $1,896.06 per ounce after hitting its highest since Jan. 8 at $1,912.50.

Oil prices settled higher as a drop in U.S. crude stockpiles reinforced expectations of improving demand ahead of the peak summer driving season, offsetting worries that a possible return of Iranian supply would cause a glut.

Brent settled up 16 cents, or 0.3%, to $68.87 a barrel and U.S. West Texas Intermediate (WTI) crude settled up 14 cents, or 0.2%, at $66.21 a barrel.

(Reporting by Chibuike Oguh in New York; Editing by Will Dunham and David Gregorio)