Stocks, dollar rise after Fed chief lifts rate expectations

Stocks advanced and the dollar spiked higher Friday after Federal Reserve chief Kevin Warsh called high inflation "concerning", fanning expectations the central bank will raise interest rates to keep prices in check.

"We must be confident that underlying inflation is moving to our objective, clearly and at sufficient speed. Otherwise, we have work to do," Warsh said in a highly anticipated speech.

Short-term US Treasury bonds, which reflect monetary policy expectations, saw yields spike in anticipation of a higher Fed rate after the speech in Jackson Hole, Wyoming.

That lifted the dollar, since higher bond yields tend to attract investors seeking higher returns.

At 3.7 percent, inflation in the world's biggest economy is nearly double the Fed's target of two percent, and investors worry that high energy prices from the Iran war could persist as winter approaches.

"On the price-stability side of our mandate, the numbers are more concerning," Warsh said, even as he said he was "impressed" with US economic performance, with employment "doing well". 

That assessment reassured stock investors despite the prospect of higher borrowing costs, with expectations rising of a Fed rate hike by December.

"Kevin Warsh's speech at the Jackson Hole symposium delivered a far clearer -- and hawkish -- message than his last press conference appearance" in July, said Stephen Brown, an economist at Capital Economics. 

"Hikes are not guaranteed, but Warsh is now at least suggesting he is on board with them if economic growth remains strong" and inflation remains elevated, he said. 

Wall Street indices rose across the board and European stocks closed higher, with Paris climbing one percent as luxury shares led gains.

Asian equity markets largely advanced Friday, though tech firms struggled to extend Thursday's rally that came on the back of Nvidia's profit blowout and bumper forecast, which soothed worries over the AI boom.

Tokyo and Hong Kong rose, while Seoul and Shanghai retreated.

Oil prices fell after Iran's foreign minister suggested that diplomatic efforts to end the war with the United States were still possible.

But investors remained cautious, with the US Treasury announcing Friday it would target a major Egyptian bank working in the United Arab Emirates over its Iran operations.

US officials have vowed an "economic asphyxiation" to make Iran open the Strait of Hormuz -- through which about a fifth of world oil usually passes -- after six months of war.

- Key figures at around 1540 GMT -

New York - Dow: UP 0.3 percent at 53,714.88 points

New York - S&P 500: UP 0.3 percent at 7,756.36

New York - NASDAQ: UP 0.4 percent at 26,634.26

London - FTSE 100: UP 0.3 percent at 10,824.26 (close)

Paris - CAC 40: UP 1.0 percent at 8,401.18 (close)

Frankfurt - DAX: UP 0.8 percent at 26,569.99 (close)

Tokyo - Nikkei 225: UP 0.4 percent at 66,405.56 (close)

Hong Kong - Hang Seng Index: UP 0.1 percent at 25,584.79 (close)

Shanghai - Composite: DOWN 0.1 percent at 3,952.18 (close)

Euro/dollar: DOWN at $1.1601 from $1.1649 on Thursday

Pound/dollar: DOWN at $1.3560 from $1.3586

Euro/pound: DOWN at 85.58 pence from 85.74 pence

Dollar/yen: UP at 159.99 yen from 159.41 yen

Brent North Sea Crude: DOWN 0.2 percent at $88.33 per barrel

West Texas Intermediate: DOWN 0.4 percent at $83.23 per barrel

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