S&P 500 Retreats After Hitting New Highs, Amid Fed Rate Speculation

S&P 500 Retreats After Hitting New Highs, Amid Fed Rate Speculation

US stocks fell with bonds this morning, while the S&P 500 - the benchmark gauge for American equities - retreated from a record high and the US dollar pared its decline, after comments from Federal Reserve officials spurred speculation on higher borrowing costs amid uneven growth in the world’s largest economy.

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The S&P 500 retreated from a record high after New York Fed President William Dudley said the central bank could potentially raise interest rates as soon as next month. Meanwhile, Atlanta’s Fed chief Dennis Lockhart said he’s confident growth is accelerating, setting the stage for at least one hike this year. Yields on two-year U.S. Treasury notes, the coupon maturity most sensitive to policy expectations, climbed as the dollar trimmed a drop of as much as 1.2%.Stocks have rallied over the past month, while the dollar’s lost ground, as Fed officials weigh whether to increase borrowing costs amid conflicting signals given by a strengthening jobs market and weak growth in the past three quarters.

Investors expect about one rate hike between now and the end-of-next year, according to federal funds futures contracts, and they marked up probabilities slightly on Tuesday. Dudley said such estimates are too low and “the market is complacent about the need for gradually snugging up short-term interest rates over the next year or so.”

Near midday, the Dow Jones had fallen 0.28% and the S&P 500 was down 0.35%. The Nasdaq had also dropped 0.38%.

With traders sifting through US economic reports to gauge prospects for growth, data Tuesday showed home construction unexpectedly accelerated in July to the fastest pace in five months as factory production increased more than forecast. Meanwhile, the cost of living was little changed, a sign subdued inflationary pressures would still give policy makers reason to keep interest rates low. The Labor Department reported today that prices paid by consumers were unchanged in July as gas and other energy prices kept inflation down. Core inflation, which leaves out food and fuel prices, inched up just 0.1% for the month. Over all, inflation is up just 0.8% over the last year, far below the 2% target set by the Federal Reserve.

In other economic news this morning, the dollar fell to 100.38 yen from 101.25 yen, and the euro rose against USD to $1.1271 from $1.1183. Emerging-market shares halted an eight-day rally, and crude rose above $46 a barrel.



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