Federal Reserve Chairman Jerome Powell speaks to the Senate Banking, Housing and Urban Affairs Committee, as he presents the Monetary Policy Report to the committee on Capitol Hill in Washington, on Wednesday, June 22, 2022. AP
Soaring prices and the battle by central banks to rein them in have sent a chill through global trading floors this year, while investors are also having to deal with the uncertainty brought by the Ukraine war and patchy pandemic recovery.
Commentators have warned for some time that the world economy could be heading for another contraction owing to the sharp increase in borrowing costs and rampant inflation, which is at decades highs in several countries.
And on Wednesday, the head of the most powerful central bank in the world told lawmakers it was "certainly a possibility".
While saying the economy was strong enough for rates to rise, he added that "frankly, the events of the last few months around the world have made it more difficult for us to achieve what we want, which is two percent inflation and still a strong labour market."
He also warned: "Inflation has obviously surprised to the upside over the past year, and further surprises could be in store."
The Fed this month hiked rates by 75 basis points and is expected to do the same in July, with some observers predicting two more such moves after that.
After a day of swings, Wall Street ended in negative territory, though off big early lows.
Asia fluctuated in the morning but enjoyed a more positive afternoon, though optimism remains at a premium among investors, and analysts warned it was unlikely to improve anytime soon.
Hong Kong and Shanghai led gains thanks to a pick-up in tech firms after Chinese President Xi Jinping chaired a meeting Wednesday that pushed for "healthy" development of the fintech sector, adding to optimism that a crackdown on the industry may be coming to an end.
Xi also reaffirmed the country's 5.5 percent growth target for this year despite months of lockdown-induced pain for the economy.
The comments suggest the government will unveil market-friendly measures to boost growth.
Tokyo, Sydney, Singapore, Mumbai, Bangkok and Wellington were higher, but Seoul, Taipei, Manila and Jakarta fell.
London, Paris and Frankfurt sank, with data showing the eurozone economy slowed sharply in June. There were also concerns about Germany after it raised its gas alert level owing to Russia's war in Ukraine, with the country moving a step closer to rationing.
"Having listened to Powell's lengthy Senate testimony... it is clear that inflation is the domestic issue at the top of the political agenda," said SPI Asset Management's Stephen Innes.
"Powell consistently bobbed and weaved his way through commenting on anything of fiscal nature but was focused on deploying the tools within the Fed's power to address their dual mandate" of reining in inflation and keeping unemployment in check.
"So we should still position for more rate hike fallout to occur."
Powell's comments came as other top economists added to the recession talk, with former New York Fed President Bill Dudley saying it was "inevitable within the next 12 to 18 months".
And Deutsche Bank CEO Christian Sewing said there was a 50 percent chance of a contraction next year.
Elon Musk, JP Morgan boss Jamie Dimon and economist Nouriel Roubini are among several others to have made similar forecasts.
"We are still in an era where uncertainty is elevated and is expected to remain so for quite a while," said JoAnne Feeney, of Advisors Capital Management, on Bloomberg Television.
"It's risky right now in terms of the forward outlook for the global economy. Recession risk has clearly risen."
The prospect of a retreat in the global economy continued to drag oil prices down as traders fret over demand, with both main contracts down around one percent, having tumbled on Wednesday. However, they were well off morning lows.
Brent and WTI have dropped around 15 percent over the past week, even with sanctions on Russian crude exports and China's gradual reopening from lockdowns.
Adding to the selling was data Wednesday indicating a jump in US stockpiles.
"A slowdown in global growth is a risk to oil demand, which could help ease some of the tightness in the market," Warren Patterson, at ING Groep, said.
"Already, we have seen demand estimates revised lower."