Data showing the US wholesale price index eased slightly last month but rose more than forecast, reinforcing the view that the central bank still has much more work to do to defeat inflation -- even after almost a year of lifting borrowing costs.
The reading came as other figures from the United States showed consumer prices came down slower than expected and retail sales surged, while job creation smashed estimates and unemployment claims came in on the soft side.
Markets last month rallied on hopes the Fed would be able to pause its hiking cycle soon -- or even cut rates by the end of the year -- but now there is a realisation that more increases are needed to get inflation back to the bank's two percent target.
"You will not sustainably get to two percent inflation when you have a labour market that is this tight," Steve Chiavarone, of Federated Hermes, told Bloomberg News. "It is so completely out of whack."
The tighter policy environment has renewed fears on trading floors that the US economy will tip into recession.
St Louis Fed boss James Bullard and his Cleveland counterpart Loretta Mester on Thursday became the latest monetary policymakers to warn further hikes were in the pipeline.
"My overall judgement is it will be a long battle against inflation, and we'll probably have to continue to show inflation-fighting resolve as we go through 2023," warned Bullard.
He also said he would not rule out doubling the next rate increase to 50 basis points next month, a view shared by Mester.
"As we showed, when the economy calls for it, we can move faster, and we can do bigger at any particular meeting. And it's going to be driven by how the economy is evolving," she said, adding that she saw a compelling case for a 50 basis-point move at the bank's last meeting.
She also noted that nothing indicated a pause would be in order at the moment.
Michael Hewson at CMC Markets said her comments "raise the question that even if there wasn't a compelling case for a 50-basis-point move back then amongst other members, surely the data since then suggests that there might be a stronger case for a 50bps move in March".
All three main indexes on Wall Street closed more than one percent lower Thursday, and Asia followed suit.
Hong Kong, Tokyo, Sydney, Shanghai, Seoul, Mumbai, Bangkok, Jakarta, Wellington, Taipei and Manila were all in the red.
London and Paris both fell at the open, a day after hitting record highs, while Frankfurt was also down.
Bets on higher-for-longer rates sent the dollar rallying against its peers and on Friday it hit its strongest level against the yen since December.
Oil tumbled further on concerns about recession and the impact on demand, compounded by data showing US stockpiles were at their highest levels since 2021.
- Key figures around 0820 GMT -
Tokyo - Nikkei 225: DOWN 0.7 percent at 27,513.13 (close)
Hong Kong - Hang Seng Index: DOWN 1.3 percent at 20,719.81 (close)
Shanghai - Composite: DOWN 0.8 percent at 3,224.02 (close)
London - FTSE 100: DOWN 0.5 percent at 7,975.83
Dollar/yen: UP at 134.84 yen from 133.96 yen on Thursday
Euro/dollar: DOWN at $1.0643 from $1.0673
Pound/dollar: DOWN at $1.1933 from $1.1983
Euro/pound: UP at 89.18 pence from 89.04 pence
West Texas Intermediate: DOWN 1.3 percent at $77.49 per barrel
Brent North Sea crude: DOWN 1.1 percent at $84.17 per barrel
New York - Dow: DOWN 1.3 percent at 33,696.85 points (close)
dan/aha
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