Utilities and phone stocks, which investors have sought out this year for their high dividends, fell far more than the rest of the market.
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USA stocks on Friday headed firmly lower at the start of trade as comments from Federal Reserve Bank of Boston President Eric Rosengren about raising benchmark interest rates has rattled investors. “A failure to continue on the path of gradual removal of accommodation could shorten, rather than lengthen, the duration of this recovery”.
Fed funds futures prices showed traders had modestly raised their bets on a rate increase at the next FOMC policy meeting on September 20-21. Although he has previously been an outspoken advocate for holding interest rates low, the strength of the labor market and a steep rise in asset prices have caused the Boston chief to support tighter monetary policy.
The Fed raised rates from near zero last December – the first rate hike in almost a decade – but has since stood pat given an economic slump at home and volatile markets overseas.
A 2016 voter on the Federal Open Market Committee, Rosengren argued for years to combat unemployment with low rates.
Mr. Rosengren pointed to rising commercial real estate costs as an indication the economy may be reaching the point where low rates may be doing more harm than good.
Stocks are falling broadly on Wall Street in midday trading as investors consider the likelihood that the Federal Reserve will raise its key interest rate this year.
Rosengren, who stressed the Fed was not about to raise rates “too rapidly”, appeared to fall in line with Fed Chair Janet Yellen’s message last month that the case was “strengthening” to tighten.
Fed Governor Lael Brainard, seen as a leading opponent of rate increases for much of the past year, is scheduled to deliver a speech in Chicago Monday outlining her views on the economy and monetary policy.
Mr. Rosengren, in his Quincy speech, sought to counter those arguments. The yield on 10-year U.S. Treasuries rose toward a two-month high on Friday.
“It’s really hard to be an investor in US equities right now because benchmarks are just glued to those all-time highs”, said Steven Santos, a broker at Banco de Investimento Global SA in Lisbon.
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And Mr. Rosengren suggested the risks of running the economy too hot outweigh the risks of stifling inflation growth. While an overseas slowdown remains a concern, he noted that the US economy could even overheat if Fed policy remains unchanged for much longer.
