US Stocks Lower as Hawkish Fed Comments Offset Mixed Economic Data

U.S. equity futures are trading at their low of the pre-market session after St. Louis Federal Reserve President James Bullard sounded the hawkish alarm. His comments also fueled a surge in U.S. Treasury yields, which gave the U.S. Dollar a boost, while putting pressure on dollar-denominated commodities like gold and crude oil.

Meanwhile, U.S. economic data came in surprisingly mixed. A key Fed report on East Coast manufacturing plunged, but housing market data was better-than-expected and weekly unemployment claims mysteriously fell.

Fed’s Bullard:  Even “Dovish” Policy Assumptions Require Further Rate Increases

Even under a “generous” analysis of monetary policy the Federal Reserve needs to continue raising interest rates probably by at least another full percentage point, St. Louis Federal Reserve President James Bullard said, arguing that rate hikes so far “have had only limited effects on observed inflation.”

Bullard said that despite aggressive actions by the Fed this year the current target policy rate of between 3.75% and 4% remains below the “sufficiently restrictive” level the Fed feels is needed to lower inflation to its 2% target, Reuters reported.

“While the policy rate has increased substantially this year, it has not yet reached a level that could be justified as sufficiently restrictive, according to this analysis, even with the generous assumptions,” Bullard said. “To attain a sufficiently restrictive level, the policy rate will need to be increased further.”

Economic Data Offers Mixed Signals

In economic news, the Philadelphia Fed Manufacturing Index plunged to -19.4, much lower than the -6.0 forecast and the -8.7 previous reading.

However, U.S. Weekly Unemployment Claims surprising fell to 222K, down from 226K last week. Traders were looking for a reading of 228K.

In another surprise, Building Permits rose 1.53 million units, better than the 1.51 million estimate, but lower than the previously reported 1.56 million last month.

Housing Starts produced similar results, coming in at 1.43 million units. This was lower that the previously reported 1.44 million units, but better than the 1.41 million forecast.