US stocks fall as investors predict interest rate rise

US stocks fell this morning (July 7th) as investors speculated the Federal Reserve may raise interest rates sooner than expected.

The Dow Jones industrial average lost 0.26 per cent to 17,024 at 10:40 ET. The Standard & Poor's 500 index lost 0.22 per cent, to 1,981 and the Nasdaq composite fell 0.2 percent, to 4,476.

The market gave up some of its gains from late last week, when the US reported strong figures for auto sales and employment, while new data showed Chinese manufacturing activity picking up.

The Dow closed above 17,000 for the first time Thursday following the good news. US financials markets were closed Friday for the Independence Day holiday.

Goldman Sachs Group Inc. revised its forecast for the Federal Reserve to raise rates to the third quarter of 2015, rather than the first three months of 2016, saying the economy is “accelerating to an above-trend pace”, Bloomberg reports.

The unemployment rate has fallen to 6.1 per cent from 7.5 per cent a year ago, which suggests that slack in the labor market is diminishing and the risk of overheating is gradually rising, according to the Wall Street Journal, which adds that a broad rise in inflation would be an added signal that the time to move on rates is nearing. 

However, Fed chairwoman Janet Yellen has signalled last June she wants to take her time, saying that the central bank can hold short-term interest rates steady until the middle of next year and then raise them gradually.

However, she said that investors should not take low rates for granted: "It is important for market participants to recognise that there is uncertainty about what the path of interest rates, short-term rates, will be, and that’s necessary because there’s uncertainty about what the path of the economy will be."

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