Wall Street moves lower as Fed officials flag hike

US Treasuries also declined on the prospect of a Fed rate increase this year. Photo / AP

Wall Street moved lower, as did US Treasuries, as Federal Reserve officials suggested the central bank might raise interest rates soon.

New York Fed President William Dudley said "it's possible" the Fed might hike rates as early as next month.

"We're edging closer towards the point in time where it will be appropriate, I think, to raise interest rates further," Dudley, vice chairman of the Federal Open Market Committee, said on Fox Business Network.

Meanwhile, Atlanta Fed's Dennis Lockhart said he does not believe US economic growth momentum has stalled, and remains confident about prospects in the second half of 2016 and 2017.

"If my confidence in the economy proves to be justified, I think at least one increase of the policy rate could be appropriate later this year," Lockhart said in prepared remarks.

Wall Street declined. In 3.14pm trading in New York, the Dow Jones Industrial Average fell 0.3 percent, while the Nasdaq Composite Index slid 0.5 per cent. In 2.59pm trading, the Standard & Poor's 500 Index shed 0.4 per cent.

The Dow moved lower as declines in shares of Johnson & Johnson and those of Microsoft, down 1.6 per cent and 1.2 per cent respectively, outweighed advances in shares of Goldman Sachs and those of Intel, up 0.4 per cent each respectively.

US Treasuries also declined on the prospect of a Fed rate increase this year.

"Dudley definitely had an impact on the market," Justin Lederer, an interest-rate strategist at Cantor Fitzgerald, one of the 23 primary dealers that trade with the Fed, told Bloomberg.

"The market's still not pricing it in," Lederer said of a 2016 Fed hike, "but the truth is a lot of people are expecting it."

The latest economic data were mixed. A Labor Department report showed the consumer price index was steady in July, after a 0.2 per cent gain in June. The so-called core CPI, which excludes food and energy costs, rose less than expected, advancing 0.1 per cent.

Separately, a Commerce Department report showed housing starts unexpectedly rose in July, advancing 0.8 per cent.

With inflation continuing to miss to the downside, the case for caution remains strong.

"The strong housing starts and industrial output performance will bolster the Fed's confidence that growth momentum has rebounded, potentially supporting the bias for a near-term hike," Millan Mulraine, deputy chief economist at TD Securities in New York, told Reuters. "Nevertheless, with inflation continuing to miss to the downside, the case for caution remains strong."

In Europe, the Stoxx 600 Index finished the session with an 0.8 per cent decrease from the previous close. Germany's DAX index declined 0.6 per cent, while the UK's FTSE 100 index fell 0.7 per cent, and France's CAC 40 index dropped 0.8 per cent.