Could U.S. interest rate hike come by March?

U.S. stocks dropped as data showed consumer spending grew less than forecast in May and a Federal Reserve official said interest rates may rise by March. Treasuries climbed with emerging-market equities and oil slid.

The Standard & Poor’s 500 Index (CME:SPM14) slipped 0.5% at 10:55 a.m. in New York. The yield on 10-year Treasuries (CBOT:ZNM14) fell four basis points to 2.52%. The Stoxx Europe 600 Index declined 0.1%, erasing an earlier advance of 0.3% and dropping for a fifth straight day. The MSCI Emerging Markets Index advanced 0.5%. Oil (NYMEX:CLN14) futures slid 1.1% and gold (COMEX:GCM14) lost 0.5%.

Fed Bank of St. Louis President James Bullard predicted the central bank’s first interest-rate rise will happen in the first quarter of next year as unemployment falls and inflation quickens. U.S. consumer spending grew less than forecast in May while jobless claims decreased last week, reports showed today. Data yesterday indicated America’s economy shrank the most in five years last quarter, underscoring the need for the Fed to support any recovery with accommodative monetary policy.

“There’s a multitude of factors driving the market lower,” Joe Bell, senior equity analyst at Cincinnati-based Schaeffer’s Investment Research Inc., said in a phone interview. “You’re seeing the Fed comments from Bullard come out, a market that’s been on a low-volatility uptrend and uncertainty from a geopolitical standpoint over in Iraq. It’s a perfect storm for different parties to take some money off the table.”

Consumer purchases, which account for about 70% of the economy, climbed 0.2% after being little changed in April, Commerce Department figures showed. The median forecast of 76 economists in a Bloomberg survey called for a 0.4% rise. Incomes advanced 0.4% and the saving rate increased to an eight-month high.

Inflation Gauge

The price measure tied to consumer spending watched by the Fed rose 0.2% in May from the prior month and was up 1.8% from a year earlier. That was the biggest 12-month increase since October 2012. The central bank’s goal is for inflation to climb at around 2%.

Separate data showed fewer Americans filed applications for unemployment benefits last week, a sign of steady progress in the labor market.

Speaking on Fox Business Network, Bullard said the U.S. jobless rate may fall below 6% and inflation rise near 2% by the end of this year. He said markets may not be fully appreciating how close the Fed is to reaching it goals.

Economic Growth

The S&P 500 rose 0.5% yesterday as investors shrugged off data showing U.S. gross domestic product shrank 2.9% in the first quarter, the worst reading since 2009. The benchmark index closed at a record last week on speculation the economy is recovering from extreme weather at the beginning of the year. The gauge is up 1.4% in June, for its fifth straight monthly increase, and 4.2% for the quarter.

Fed Chair Janet Yellen last week said accommodative monetary policy, rising property and equity prices and the improving global economy should lead to above-trend growth. She emphasized the need to put more Americans back to work and downplayed concerns about asset-price bubbles and incipient inflation, while pledging to keep interest rates low for a prolonged time.

Bed Bath & Beyond Inc. tumbled 9.3% after forecasting profit that was less than analysts’ estimated amid competition from online retailers. Alcoa Inc. gained 2.7% as the largest U.S. aluminum producer agreed to buy U.K. aerospace-components maker Firth Rixson Ltd. for about $2.5 billion in stock and cash.

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