New York Market: Fed expected to act on rising jobs' pressure

US STOCKS are likely to fall further this week on expectations that the Federal Reserve will raise interest rates on 24 August. Investors "are worried that the Fed is probably going to tighten", said Thomas McManus, an equity portfolio strategist at Bank of America Securities. "The correction is in full bloom."

The spectre of rising rates sent two main indexes lower for a third week, a concern given more credence when the July employment report showed that the economy added 50 per cent more jobs than expected last month - proof to many that the economy is growing fast enough to spark inflation. Henry Cavanna, at JP Morgan, said the Fed needed ammunition and "being practically at full employment" suggested the Fed would act.

The Dow Jones Industrial Average was little changed on the week at 10,660.84; the S&P 500 Index fell 2.6 per cent to 1,294.20; and the Nasdaq slid 3.8 per cent to 2,536.35. September futures on the Federal funds rate show that investors are building in an 80 per cent probability of a rate increase on 24 August.

The Fed last raised rates on 30 June, by a quarter point to 5 per cent. It also shifted to a neutral stance, implying it would not raise rates again unless there were signs of inflation.

Chairman Alan Greenspan told Congress last month that one indicator that might force the Fed to act would be a shrinking pool of available workers - which would put pressure on wage levels and filter through to higher prices for goods and services. "This further reinforces the view that we may be seeing signs of pressure in the labour market, and the odds are better for further rate increases," said John Bartlett, at Commerce Bancshares.

Average hourly wages rose by 0.5 per cent in July, higher than the 0.3 per cent expected by analysts.

Robert Bacarella, president at Monetta Financial, anticipates the main indexes will fall another 3 to 5 per cent from current levels before a rate increase will be fully discounted.

Investors will see several economic reports before the policy-making Federal Open Market Committee meets. The government releases figures on retail sales on Thursday, and on prices paid to farmers and other producers on Friday. July's consumer price report comes on 17 August.

However, few expect a repeat of last year, when the Dow average fell 19.2 per cent between its 1998 high on 17 July and 31 August in the wake of the Russian financial crisis.

Start your day with The Independent, sign up for daily news emails
Voices
voices
News
general electionThis quiz matches undecided voters with the best party for them
Life and Style
Men with beards rejoice: Your beard probably doesn't harbour faeces-like bacteria
health
Arts and Entertainment
Keira Knightley and Matthew Macfadyen starred in the big screen adaptation of Austen's novel in 2005
tvStar says studios are forcing actors to get buff for period roles
ebooks
ebooksA celebration of British elections
  • Get to the point
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Ashdown Group: Trainee Consultant - Surrey/ South West London

£22000 per annum + pension,bonus,career progression: Ashdown Group: An establi...

Ashdown Group: Trainee Consultant - Surrey / South West London

£22000 per annum + pension,bonus,career progression: Ashdown Group: An establi...

Recruitment Genius: Claims Administrator

£16000 - £18500 per annum: Recruitment Genius: This is an excellent opportunit...

Recruitment Genius: Senior SEO Executive

£24000 - £28000 per annum: Recruitment Genius: A Senior SEO Executive is requi...

Day In a Page

Fishing for votes with Nigel Farage: The Ukip leader shows how he can work an audience as he casts his line to the disaffected of Grimsby

Fishing is on Nigel Farage's mind

Ukip leader casts a line to the disaffected
Who is bombing whom in the Middle East? It's amazing they don't all hit each other

Who is bombing whom in the Middle East?

Robert Fisk untangles the countries and factions
China's influence on fashion: At the top of the game both creatively and commercially

China's influence on fashion

At the top of the game both creatively and commercially
Lord O’Donnell: Former cabinet secretary on the election and life away from the levers of power

The man known as GOD has a reputation for getting the job done

Lord O'Donnell's three principles of rule
Rainbow shades: It's all bright on the night

Rainbow shades

It's all bright on the night
'It was first time I had ever tasted chocolate. I kept a piece, and when Amsterdam was liberated, I gave it to the first Allied soldier I saw'

Bread from heaven

Dutch survivors thank RAF for World War II drop that saved millions
Britain will be 'run for the wealthy and powerful' if Tories retain power - Labour

How 'the Axe' helped Labour

UK will be 'run for the wealthy and powerful' if Tories retain power
Rare and exclusive video shows the horrific price paid by activists for challenging the rule of jihadist extremists in Syria

The price to be paid for challenging the rule of extremists

A revolution now 'consuming its own children'
Welcome to the world of Megagames

Welcome to the world of Megagames

300 players take part in Watch the Skies! board game in London
'Nymphomaniac' actress reveals what it was really like to star in one of the most explicit films ever

Charlotte Gainsbourg on 'Nymphomaniac'

Starring in one of the most explicit films ever
Robert Fisk in Abu Dhabi: The Emirates' out-of-sight migrant workers helping to build the dream projects of its rulers

Robert Fisk in Abu Dhabi

The Emirates' out-of-sight migrant workers helping to build the dream projects of its rulers
Vince Cable interview: Charging fees for employment tribunals was 'a very bad move'

Vince Cable exclusive interview

Charging fees for employment tribunals was 'a very bad move'
Iwan Rheon interview: Game of Thrones star returns to his Welsh roots to record debut album

Iwan Rheon is returning to his Welsh roots

Rheon is best known for his role as the Bastard of Bolton. It's gruelling playing a sadistic torturer, he tells Craig McLean, but it hasn't stopped him recording an album of Welsh psychedelia
Morne Hardenberg interview: Cameraman for BBC's upcoming show Shark on filming the ocean's most dangerous predator

It's time for my close-up

Meet the man who films great whites for a living
Increasing numbers of homeless people in America keep their mobile phones on the streets

Homeless people keep mobile phones

A homeless person with a smartphone is a common sight in the US. And that's creating a network where the 'hobo' community can share information - and fight stigma - like never before