Stocks dip, bonds fall as CPI keeps Fed on course

Fri May 22, 2015 3:30pm EDT
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By Herbert Lash

NEW YORK (Reuters) - Global equity markets dipped but remained near record highs on Friday after Federal Reserve Chair Janet Yellen said she expected interest rates to rise this year, a view that lifted bond yields and was bolstered by rising core consumer prices.

In a speech to a business group in Providence, Rhode Island, Yellen said she expected economic data to strengthen and noted that some of the economy's weakness at the start of the year might be due to "statistical noise."

Yellen's tone on when the rate lift-off would begin appeared stronger, as she and other Fed policymakers try to close the gap between the central bank's view and that of the market.

A Labor Department report on consumer prices last month added to the notion that the Fed is on track for its first rate hike in nearly a decade.

Excluding food and energy, prices increased 0.3 percent in April, the largest rise in the so-called core CPI since January 2013. In the 12 months through last month, the core CPI advanced 1.8 percent after a similar gain in March.

"Yellen is a dove more than a hawk, and she's not in a real rush to raise rates. She wants to do it, but she wants people to be prepared," said Wayne Kaufman, chief market analyst at Phoenix Financial Services In New York.

"We've been making new highs, but this isn't an enthusiastic rally," Kaufman said of the equity market. "People will likely remain bullish, but they'll keep their powder dry and allocate a little more of their portfolios to cash."

MSCI's all-country world index .MIWD00000PUS, a measure of the stock performance in 46 countries, slid 0.26 percent, slightly below an all-time high set in late April.   Continued...

A man walks past the London Stock Exchange in the City of London October 11, 2013. REUTERS/Stefan Wermuth