Dollar rallies, U.S. stocks fall as Fed shakes 'complacent' markets

Fri Aug 26, 2016 5:10pm EDT
 
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By Hilary Russ

NEW YORK (Reuters) - U.S. stocks closed lower in choppy trading and the U.S. dollar surged on Friday as investors grappled with the possible timing of an interest rate hike after comments from several Federal Reserve officials, including Chair Janet Yellen.

Oil steadied in a volatile session and Treasury prices fell as investors across asset classes parsed the details of Yellen's presentation, markets' central focus of the week.

"The Fed served notice that a rate hike is still a possibility this year, and the markets had gotten a little complacent," said Anthony Valeri, investment strategist for LPL Financial in San Diego. "You're seeing the Treasury market and stocks have an adjustment."

In her much-awaited speech at an international gathering of central bankers in Jackson Hole, Wyoming, Yellen did not indicate when the Fed might hike rates. But her comments reinforced the view that such a move could come later this year.

The Fed has policy meetings scheduled in September, November and December.

The dollar rallied quickly off Yellen comments that were perceived as hawkish, said Minh Trang, senior FX trader at Silicon Valley Bank in Santa Clara, California.

"The overall takeaway, not just from Yellen but for the week, is that all the Fed officials - the voter and no-voter alike - have all taken a hawkish bent. The only downside I see is that there are only three meetings left this year and time is running out. Given the Fed's history, it's difficult to see them hiking more than once this year."

In a mid-day interview on CNBC after Yellen spoke, the Fed's No. 2 policymaker, Vice Chair Stanley Fischer, suggested that rate hikes were on track for this year. U.S. stocks, which had been higher, then fell.   Continued...

 
Traders work at their desks in front of the German share price index, DAX board, at the stock exchange in Frankfurt, Germany, August 24, 2016. REUTERS/Staff/Remote