An index of global stock markets fell, while short-term US Treasury yields rose on Friday, after Federal Reserve Chair Jerome Powell said the US economy will need tight monetary policy “for some time” before inflation is under control.

The dollar erased early losses to turn positive against a basket of currencies, while gold, which loses appeal as interest rates rise, fell after Mr Powell’s comments.

Tight monetary policy “for some time” means slower growth, a weaker job market and “some pain” for households and businesses, Mr Powell said in a speech to the central banking conference in Jackson Hole, Wyoming.

“Reducing inflation is likely to require a sustained period of below-trend growth. Moreover, there will very likely be some softening of labor market conditions,” Mr Powell said.

He did not hint at what the Fed might do at its upcoming Sept. 20-21 policy meeting. Officials are expected to approve either a 50- or 75-basis-point rate increase.

Interest rate futures tied to expectations about Fed policy fell on Friday moments after Powell’s speech, reflecting increased chances of a third straight 75-basis-point rate hike.

“It was hawkish as expected. Powell’s message is clear: the Fed is far from done in its fight against inflation,” said Antoine Bouvet, senior rates strategist at ING in London.

MSCI’s gauge of stocks across the globe shed 2.47 per cent, its worst day in more than two months.

Wall Street’s main indexes fell, with Powell’s comments dragging down megacap growth and technology stocks.

“His comments were hawkish. He’s keeping the pedal to the metal here when it comes to policy to fight inflation,” said Lindsey Bell, chief money and markets strategist at Ally.

The Dow Jones Industrial Average fell 1,008.38 points, or 3.03 per cent, to close at 32,283.4, the S&P 500 lost 141.46 points, or 3.37 per cent, to finish at 4,057.66 and the Nasdaq Composite dropped 497.56 points, or 3.94 per cent, to end the session at 12,141.71.

European stocks slid as investors also fretted over downbeat German consumer sentiment data due to rising energy costs.

The broader cryptocurrency market was up as high as 6.99% over the past 24 hours, while the stock market is down nearly 2% on the news.

Key points For most of 2022, the crypto space had largely followed the ups and downs of the US stock market. That correlation seems to be weakening.The US Bureau of Labor Statistics released September’s inflation numbers which saw an 8.2% increase in the price of goods compared to the year prior.Since inflation continues to rise, it’s all but certain that the Federal Reserve will jack up short-term interest rates by 0.75% next month.

On Thursday, the government issued September’s inflation numbers, and we saw the rate of inflation increase at a higher-than-expected level of 8.3% versus September 2021. That marks the 16th consecutive month of inflation in mid-to-high single digits. That level of consistently higher cost of goods will likely cause the Fed to push interest rates higher by 0.75% when it meets next month, to try and cool the red-hot economy.

A tale of two asset classes

Interestingly, the dour inflation news seems to have sparked a decoupling of the crypto sector and the tech stock market, which have mirrored closely throughout 2022. According to CoinMarketCap, the total market capitalization across cryptocurrency exchanges over the past 24 hours surged as high as 6.99 % since the inflation numbers posted yesterday. Additionally, the single-largest and most valuable crypto asset — Bitcoin — popped more than 7% over the same period.

However, the S&P 500 — which tracks the stock prices of the top 500 most valuable companies — is down 1.83% at the time of this writing. This emerging divergence between stocks and cryptocurrencies could be a signal of better things to come for the digital asset market. As inflation stays high — which seems to be the new normal despite the efforts by the Fed — inflation will erode and suppress the value of the dollar. A declining dollar is a good thing for cryptocurrency assets, which are inversely correlated.

Both the crypto and stock markets have baked in the belief that the Fed will pump short-term interest rates another 75 basis points in November. We’ll have to see if the hikes are finally able to freeze inflation by the end of the year, while also watching how the equity and crypto markets react to more costly access to dollars due to the Fed’s hawkish policies.