Wall Street slips on Janet Yellen’s rate hike comments

Traders work on the floor of the New York Stock Exchange in New York, US on Feb 13, 2017.
Traders work on the floor of the New York Stock Exchange in New York, US on Feb 13, 2017. PHOTO: BLOOMBERG

WASHINGTON (REUTERS) - Wall Street edged lower on Tuesday (Feb 14) after Federal Reserve Chair Janet Yellen said the central bank will likely need to raise interest rates at an upcoming meeting, but expressed uncertainty over economic policy under the Trump administration.

She did not say if the Fed still planned for three rate hikes this year, as it had signaled in December. Nor did she give indications if a hike might come at its meeting in March or in June, as most analysts expect.

While President Donald Trump’s pro-business stance sparked a record-setting rally in equities, he has given scant detail on his policies, giving the Fed limited visibility on the direction of the economy.

 

“It is too early to know what policy changes will be put in place or how their economic effects will unfold,” Yellen said.

She said delaying rate hikes could leave Fed policymakers behind the curve and lead to quicker rate hikes down the line, which could cause a recession.

Yellen’s rate hike comments lifted the dollar and US Treasury yields, while boosting the S&P financial sector, which rose 0.8 per cent. Bank stocks were the top gainers on the S&P and the KBW banking index rose 1.3 per cent.

Nine of the 11 major S&P sectors were lower, led by the high dividend-yielding utilities and real estate sectors, both of which were down more than 1 per cent. 

“While emphasising the broadening improvements in the US economy, Chair Yellen highlighted the still-uncertain outlook, including on account of possible changes in fiscal policy and‘developments abroad,’ and thus the importance of a highly responsive monetary policy.” said Mohamed El-Erian, chief economic adviser at Allianz in Newport Beach, California.

At 10.49am EDT the Dow Jones Industrial Average was down 9.17 points, or 0.04 per cent, at 20,402.99, the S&P 500 was down 3.96 points, or 0.17 per cent, at 2,324.29 and the Nasdaq Composite was down 9.32 points, or 0.16 per cent, at 5,754.63.

General Motors was the biggest percentage gainer on the S&P, rising 3.9 per cent after Peugeot-owner PSA Group said it is in talks to buy GM’s European Opel business.

The prospects of sector consolidation caused Fiat to jump 3.7 per cent, while Ford gained 0.6 per cent.

Declining issues outnumbered advancers on the NYSE by 1,896 to 875. On the Nasdaq, 1,522 issues fell and 1,129 advanced.

The S&P 500 index showed 36 new 52-week highs and no new lows, while the Nasdaq recorded 68 new highs and 11 new lows.