Wall Street lower on New York Fed chief's rate hike comments

Comments by William Dudley, president of the New York Federal Reserve Bank, have raised expectations among traders of an interest rate hike this year.
Comments by William Dudley, president of the New York Federal Reserve Bank, have raised expectations among traders of an interest rate hike this year. PHOTO: REUTERS

NEW YORK (REUTERS) - Wall Street was sharply lower on Tuesday morning, with indexes pulling away from record levels, after New York Federal Reserve President William Dudley said an interest rate in September was possible.

"The labour market is getting tighter and we're starting to see signs of wage gains starting to accelerate, so I think we're getting closer to that point in time when it will be appropriate to actually raise short-term rates again," Mr Dudley, a permanent voting member of the Federal Reserve, said in an interview on Fox Business Network.

Mr Dudley's comments raised expectations among traders of an interest rate hike this year - they now see a 12 per cent chance of a hike in September, up from 9 per cent before Mr Dudley's comments.

That measure increased to 37.8 per cent from 37.4 per cent for December, according to CME Group's FedWatch tool.

The dollar pared earlier losses, but remained near its lowest level this month, after Dudley's comments.

Investors will pore over the minutes of the Fed's July policy meeting, scheduled for release on Wednesday, for clues on the central bank's rate plans after a blowout June jobs data.

However, data on Tuesday showed US consumer prices were unchanged in July as the cost of gasoline fell for the first time in five months and underlying inflation moderated.

The Fed has a 2 per cent inflation target and tracks an inflation measure which has been stuck at 1.6 per cent since March. "What we are seeing here is a market that is technically overbought and is looking for some sort of an excuse to pause a bit," said Peter Cardillo, chief market economist at First Standard Financial in New York.

At 9:34 a.m. ET (9:34 p.m Singapore time), the Dow Jones Industrial Average was down 59.24 points, or 0.32 per cent, at 18,576.81, the S&P 500 index was down 6.81 points, or 0.31 per cent, at 2,183.34 and the Nasdaq Composite index was down 17.41 points, or 0.33 per cent, at 5,244.61.

Nine of the 10 major S&P 500 indexes were lower, with the energy sector's 0.63 percent decline being the biggest.