US stocks fluctuate as investors assess rate rise talk in Fed minutes

US stocks fell on Wednesday after investors pored over the minutes of the Federal Reserve’s last meeting, which indicated that most central bankers backed its recent quarter-point increase but some favoured a bigger rise.

In New York, the blue-chip S&P 500 index lost 0.2 per cent and the tech-heavy Nasdaq Composite gained 0.1 per cent, paring earlier gains from before the release of the minutes.

The summary of the Fed’s latest policy meeting, which ended on February 1, revealed that almost all officials backed its decision to raise its benchmark interest rate by a quarter of a percentage point, but a few preferred a half-point increase. St Louis Fed president James Bullard has said in recent weeks that he favoured a larger increase as the central bank takes aim at inflation.

“The participants favouring a 50-basis point increase noted that a larger increase would more quickly bring the target range close to the levels they believed would achieve a sufficiently restrictive stance,” the minutes said.

In the weeks since the meeting, fresh data has indicated that the US economy may be running even hotter than central bankers believed three weeks ago.

“The Fed minutes are a little out of date because there was a blowout jobs report and a robust consumer spending report after the Fed meeting, showing inflationary pressures are likely stronger than previously feared,” said Chris Zaccarelli, chief investment officer of Independent Advisor Alliance.

The moves came a day after US stocks recorded their worst trading session in two months, as traders were unnerved by evidence of a resilient economy and the prospect of further interest rate rises.

Yields on long- and short-dated Treasuries were lower after a slight rebound following the minutes. Benchmark 10-year US Treasuries fell to 3.92 per cent. Yields on interest rate-sensitive two-year notes fell to 4.70 per cent after touching a three-month high on Tuesday.

“If you compare sentiment to one month ago, people were expecting the Fed might only have a little room left to hike,” said Dickie Wong, head of research at Kingston Securities. “But now it looks like inflation may not ease up and the Fed will have to raise rates repeatedly.”

Earlier on Wednesday, European and Asian stocks weakened, dragged down by Tuesday’s falls in the US and signs of economic optimism in the eurozone.

The Europe-wide Stoxx 600 declined 0.3 per cent and Germany’s Dax was flat. London’s FTSE 100 declined 0.6 per cent.

“It’s no great surprise” that the strong surveys of business activity in the US and eurozone this week had dented equities, said Jack Allen-Reynolds, deputy chief eurozone economist at Capital Economics. “We’re in this world where good news is bad news, so strong PMIs have prompted investors to expect a higher peak in interest rates.”

In Asian markets, Japan’s benchmark Topix index fell 1.1 per cent, while China’s CSI 300 index of Shanghai- and Shenzhen-listed stocks slipped 0.9 per cent and Australia’s S&P/ASX 200 fell 0.3 per cent.

In currency markets, the dollar index, which measures the greenback against six peer currencies, rose 0.4 per cent. The euro fell 0.4 per cent against the dollar.

The price of Brent crude oil fell 3 per cent to $80.60 a barrel, while WTI, the US equivalent, dropped 3.2 per cent to $73.95 a barrel.