Treasuries fell, US stocks slipped from records and the dollar rose after Janet Yellen reiterated her view that further tightening is warranted if the economy maintains its growth trajectory.
The yield on the 10-year Treasury note added four basis points after the Federal Reserve chair’s testimony that more interest-rate increases will be appropriate if the economy meets the central bank’s outlook of gradually rising inflation and tightening labor markets. US stocks briefly trimmed losses before turning lower as indications of overbought conditions emerged. The dollar strengthened on the prospect for tighter monetary policy as markets assessed data showing accelerating price gains at Chinese and American factories.
Yellen’s comments came in prepared testimony before the Senate Banking Committee and lifted the odds for a rate hike at the March meeting six points to 36 percent. Futures traders still see less than 50 percent odds for three increases this year. President Donald Trump’s vow to pursue pro-growth policies could push the Fed to pick up the pace, while the latest round of inflation was seen as bolstering the case for tightening before a reading on US consumer price data Wednesday.
“Waiting too long to remove accommodation would be unwise, potentially requiring the FOMC to eventually raise rates rapidly, which could risk disrupting financial markets and pushing the economy into recession,” Yellen said.
Here are the main moves in markets on Tuesday:
The S&P 500 fell 0.1 percent to 2,325.54 at 11:14 a.m. in New York, after the benchmark index closed up 0.5 percent at a record 2,328.25 on Monday. Rate-sensitive stocks fell, with real estate and utility shares pacing declines. The two have high dividend payouts that lose luster when Treasury yields rise. Banks rose the most. The Stoxx Europe 600 Index was little changed, poised to halt a five-day rally that brought it to the highest level in more than a year.
The Bloomberg Dollar Index erased a 0.2 percent drop to advance at 10:06 a.m. in New York. U.S. wholesale prices jumped more than forecast in January did little to move the index earlier. Sterling weakened 0.4 percent after data showed U.K. inflation increased to 1.8 percent from 1.6 percent in December, falling short of estimates in a Bloomberg survey. The euro gained 0.2 percent to $1.0617.