Asian and European markets sank Thursday after the Federal Reserve hiked interest rates and boss Jerome Powell suggested they would go higher than expected, blowing a hole in hopes for a more dovish pivot in its fight against inflation.

Equities have rallied for more than a week on speculation the US central bank would join others in tamping down its monetary-tightening campaign as the economy showed signs of slowing.

On Wednesday, the bank unveiled a fourth straight 75 basis-point increase -- the sixth hike this year -- and opened the door to a smaller increase at future meetings, giving a boost to Wall Street.

But Powell soon after sent traders scattering when he told a news conference that while it would be appropriate to lessen the size of the hikes, "incoming data since our last meeting suggests that ultimate level of interest rates will be higher than previously expected".

He added that "we still have some ways" until borrowing costs were at the necessary level and that it "is very premature to be thinking about pausing".

And while there is a building fear that the increasingly tight monetary conditions will send the world's top economy into a recession, the Fed boss said it would take time for the effects of the measures to kick in.

"The historical record cautions strongly against prematurely loosening policy," he warned. "We will stay the course, until the job is done."

Investors now expect rates to top out at more than five percent, compared with four percent currently.

The comments hammered the narrative that had supported stocks, sending Wall Street's three main indexes tanking -- led by rate-sensitive tech giants -- and pushing the dollar up against its peers.

"Every time the market gets a little bit of dovish hope, it gets smacked on the nose with a rolled-up newspaper," Scott Rundell of Mutual Ltd said. "There's a lot of volatility still ahead."

Hong Kong led the losses as the city's central bank hiked rates in line with the Fed, owing to their policy link via the dollar peg.

Traders gave back a chunk of the previous two days' gains, which came on the back of speculation China was planning to roll back some of its painful zero-Covid policies. Adding to the selling was confirmation from Beijing's health authority that it intended to stick to the strategy.

Shanghai, Sydney, Seoul, Wellington, Mumbai, Bangkok, Taipei and Manila were also well in the red. Tokyo was closed for a holiday.

London, Paris and Frankfurt extended the losses.

"While the market got what it wanted in the context of expectations of smaller rate rises, they probably weren't expecting that rates might need to go quite a lot higher, thus removing any prospect of an imminent pause, or even a rate cut much before the end of 2024," said Michael Hewson at CMC Markets.

The release Friday of US jobs figures will give another insight into the state of the economy and particularly the labour market, which has remained resilient in the face of decades-high inflation and rising rates.

As the Fed is basing its moves on data, a strong reading could give officials room to continue lifting.

Before that, the Bank of England is tipped to lift its key rate by 0.75 percentage points to three percent -- the most in 33 years and putting them at the highest since 2008 -- though some analysts are even predicting a full percentage point hike.

Top bankers give mixed views on global risks at summit
Hong Kong (AFP) Nov 2, 2022 - There are growing signs inflation could be brought under control, top bankers said at a summit in Hong Kong Wednesday, but geopolitical risks will continue to inject volatility and a global recession is still on the cards.

The event drew around 250 participants including the heads of some of the world's largest banks.

Few panel speakers opted to address in any detail the increasingly complex financial risks in China, but they did offer an assessment of the wider global economy facing testing times.

"My gut is the central banks will, in aggregate, tame inflation," Morgan Stanley CEO James Gorman said.

"It's highly improbable we'll get back to the kind of one to two percent inflation we enjoyed before this crisis, more like around four percent over the next few years, and we'll have to deal with that."

UBS group chair Colm Kelleher said that earning multiples in the United States are beginning to be revised and valuations in certain areas are attracting funds.

"There is a feeling that you know, the central banks will get this under control and then there will be there will be bright spots for investing," Kelleher said.

But he was negative about Europe's prospects and said businesses are watching closely as to whether China will move away from its strict Covid-19 controls.

Goldman Sachs CEO David Solomon said that the global economy is undergoing a rebalancing period, which in the past usually takes between two to four quarters.

"There's still a significant amount of uncertainty but as we get into 2023... I think you'll see issuers and capital allocators meet again in the middle," he said.

"We're now in a period of quantitative tightening. And all of this, combined with inflation and a very quick tightening of monetary conditions, makes the world more volatile, more uncertain," he added.

Former governor of the Bank of England Mark Carney painted one of the more stark portraits.

"We're headed very likely to a global recession," he said, citing -- among other things -- China's zero-Covid controls and the fallout in Europe of Russia's invasion of Ukraine.

"We're moving to higher interest rates, higher inflation, higher volatility around inflation, collateral shortages.. That transition is very difficult for the system as a whole," he said.

When asked what might cause him sleepless nights, Blackstone chief financial officer Michael Chae struck a similar note.

"What keeps me up is the possibility of rising tensions around the world that could lead to serious threats to stability."

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