Investing.com - Calls from a key Federal Reserve official for rate hikes sooner rather than later coupled with disappointed earnings out of the U.S. retail sector sent Wall Street tumbling on Tuesday.
At the close of U.S. trading, the Dow 30 fell 0.83%, the S&P 500 index fell 0.65%, while the NASDAQ Composite index fell 0.70%.
Borrowing costs are set to rise for Corporate America, possibly sooner rather than later if conditions merit, on U.S. central banker says.
Charles Plosser, the head of the Federal Reserve's Bank of Philadelphia, said earlier that the Fed should consider winding down its monthly bond-purchasing program quicker than its current pace to ensure that inflationary pressures remain in comfort zones, while rate hikes should follow soon afterwards.
"My own view is that, as we continue to move closer to our 2 percent inflation goal and the labor market improves, we must be prepared to adjust policy appropriately. That may well require us to begin raising interest rates sooner rather than later," Plosser said in prepared remarks of a speech he delivered in Washington earlier, which sent stocks falling.
"On monetary policy, reducing the pace of asset purchases in measured steps is moving in the right direction, but the pace may leave us behind the curve if the economy continues to play out according to FOMC forecasts."
The economy is improving and will continue to need less monetary support going forward, though don't expect a boom in the housing sector.
"I believe that the U.S. economy is continuing to improve at a moderate pace. We are likely to see growth return to around 3 percent through the rest of 2014. Prospects for labor markets will continue to improve, and I expect the unemployment rate will continue to decline, reaching 6.2 percent or lower by the end of 2014," Plosser said.
"I also believe that inflation expectations will be relatively stable and that inflation will move up toward our goal of 2 percent over the next year. I expect the housing and construction sectors will continue to recover. But we should not seek to return to the heady days of last decade's real estate boom."
Less hawkish statements from Plosser's colleague in New York failed to seriously cushion losses.
William Dudley, head of the New York Fed, said rates will climb after the Fed winds down stimulus programs, though hikes will come gradually.
"My current thinking is that the pace of tightening will probably be relatively slow. This depends, however, in large part, not only on the economy’s performance, but also on how financial conditions respond to tightening," Dudley said in prepared remarks of a speech he delivered in New York earlier.
"If the response of financial conditions to tightening is very mild—say similar to how the bond and equity markets have responded to the tapering of asset purchases since last December—this might encourage a somewhat faster pace. In contrast, if bond yields were to move sharply higher, as was the case last spring, then a more cautious approach might be warranted."
Disappointing news out of the U.S. retail sector also pressured share prices lower.
Office supplies giant Staples Inc (NASDAQ:SPLS) projected a drop in sales for the second quarter, while Urban Outfitters Inc (NASDAQ:URBN) and Dick's Sporting Goods Inc (NYSE:DKS) issued disappointing earnings statements that watered down stock prices.
Disappointing earnings from earthmover Caterpillar Inc (NYSE:CAT) dampened spirits as well.
Leading Dow Jones Industrial Average performers included Home Depot Inc (NYSE:HD), up 1.92%, Procter & Gamble Company (NYSE:PG), up 0.28%, and Walt Disney Company (NYSE:DIS), up 0.05%.
The Dow Jones Industrial Average's worst performers included Caterpillar Inc (NYSE:CAT), down 3.61%, AT&T Inc (NYSE:T), down 2.38%, and Nike Inc (NYSE:NKE), down 1.69%.
European indices, meanwhile, ended the day lower.
After the close of European trade, the DJ Euro Stoxx 50 fell 0.20%, France's CAC 40 fell 0.39%, while Germany's DAX fell 0.21%. Meanwhile, in the U.K. the FTSE 100 fell 0.62%.
On Wednesday, Fed Chair Janet Yellen is to speak at an event in New York. Later in the day, the Fed is to publish the minutes of its latest meeting.