Wall Street fall as US data, Fed comments signal slower rate cut path

Fed Chair Jerome Powell said on Thursday central bank did not need to rush to lower interest rates due to ongoing economic growth, a solid job market and inflation that remains above its 2% target

A gauge of global stocks was poised for its biggest weekly drop in two months while U.S. Treasury yields continued their ascent as economic data and comments from Federal Reserve officials pointed to a slower pace of rate cuts ahead.

The U.S. Commerce Department said retail sales rose 0.4% last month after an upwardly revised 0.8% advance in September. That was above the 0.3% rise expected by economists polled by Reuters, after a previously reported 0.4% gain in September.

In addition, the Labor Department said import prices unexpectedly rose 0.3% last month after an unrevised 0.4% decline in September amid higher prices for fuels and other goods. Analysts had expected a decline of 0.1%.

Fed Chair Jerome Powell said on Thursday the central bank did not need to rush to lower interest rates due to ongoing economic growth, a solid job market and inflation that remains above its 2% target.

Equities rallied in the wake of the U.S. presidential election, as investors gravitated toward assets expected to benefit from U.S. President-elect Donald Trump's policies in his second term after he pledged to impose higher tariffs on imports, lower taxes and loosen government regulations.

"What this all comes down to is the fact we've had such an incredible run that people are just like, why don't I take some profits and kind of see what's next," said JJ Kinahan, CEO of IG North America and president of Tastytrade in Chicago.

On Wall Street, the Dow Jones Industrial Average fell 275.86 points, or 0.63%, to 43,475.00, the S&P 500 fell 66.25 points, or 1.11%, to 5,882.92 and the Nasdaq Composite fell 344.45 points, or 1.80%, to 18,763.20. Each of the three major indexes had closed at record highs on Monday.

Chicago Federal Reserve president Austan Goolsbee followed up Powell's comments on Friday and said it would make sense for the Federal Reserve to slow the pace of interest rate cuts if there were disagreement among policymakers over how far rates need to be lowered to put monetary policy on a neutral footing.

MSCI's gauge of stocks across the globe fell 7.45 points, or 0.88%, to 843.75, on track for its fourth straight decline on the heels of five straight advances.

In Europe, the STOXX 600 index declined 0.64% as was set to register its fourth straight weekly drop.

Bond yields and the dollar have surged not just on growth prospects but also on concerns that Trump's policies may rekindle inflation after a long battle against price pressures following the COVID-19 pandemic. In addition, tariffs could lead to increased government borrowing, further ballooning the fiscal deficit and potentially causing the Fed to alter its course of monetary policy easing.

The dollar index, which tracks the U.S. currency against peers including the euro and Japan's yen, was 0.3% lower on the day but headed for a 1.5% weekly rise.

The greenback had risen for five straight sessions and was on pace for its biggest weekly percentage gain since early October.

Expectations for a 25 basis point cut at the Fed's December meeting stood at 55% on Friday, down from 72.2% in the prior session, and 85.5% a month ago according to CME's FedWatch Tool.

The yield on benchmark U.S. 10-year notes rose 4.9 basis points to 4.471% after reaching 4.505%, its highest since May 31. The yield has jumped more than 16 bps this month and is set for its eighth weekly rise in the past nine.

Against the Japanese yen, the dollar weakened 0.77% to 155.06. Sterling was down 0.31% to $1.2626.

U.S. crude fell 1.21% to $67.87 a barrel and Brent fell to $71.74 per barrel, down 1.13% on the day, on track for a weekly decline as investors digested a slower Fed rate cut path and waning Chinese demand.

 

(Reporting by Naomi Rovnick and Nell Mackenzie. Additional reporting by Stella Qiu.; Editing by Mark Potter and Christina Fincher)