Wall Street falls the most in two weeks following comments that Fed could raise rates in September
Wall Street stocks fell the most in two weeks on Tuesday, following European and Asian bourses lower after weak U.S. data and comments by Federal Reserve policymakers that the Fed could raise interest rates as early as next month.
New York Fed President William Dudley and Atlanta Fed chief Dennis Lockhart both said in public statements that the U.S. central bank could raise the nation’s short-term interest rates at its September policy meeting.
Fed funds futures prices showed traders raised bets on a rate hike before year-end after the comments, with odds rising to just over 50 percent, up from 42 percent on Monday, according to CME Group’s Fed Watch.
“The Fed wants to telegraph that it is in the process of normalizing rates and the market is underpricing a rate hike for this year,” said Mike Lorizio, head of Treasuries trading at John Hancock Asset Management in Boston.
Dudley and Lockhart’s comments came nine days before an annual meeting of top central bankers in Jackson Hole, Wyoming, a venue the Fed often uses to telegraph policy plans.
That weighed on stocks, which respond negatively to monetary policy tightening, particularly as U.S. data appeared unsupportive of a rate rise.
U.S. consumer prices were unchanged in July as the cost of gasoline fell for the first time in five months and underlying inflation slowed.
The underwhelming inflation report followed a soft July retail sales report last week that cast doubts on the upward momentum of the economy.
The Dow Jones industrial average fell 84.03 points, or 0.45 percent, to 18,552.02, the S&P 500 lost 12 points, or 0.55 percent, to 2,178.15 and the Nasdaq Composite dropped 34.90 points, or 0.66 percent, to 5,227.11.
All three indexes touched record highs on Monday.
European shares retreated from seven-week highs, weighed down by industrial stocks, with markets in London, Paris and Frankfurt all closing lower.
Chinese stocks pulled back from seven-month highs following a sharp fall in bank shares, and Japan’s Nikkei fell 1.62 percent to its lowest in just over a week as the yen firmed.
