New York – Wall Street closed sharply lower Wednesday after a series of economic reports left investors questioning whether the Federal Reserve might resume its string of interest-rate hikes when it meets this month.
A Labor Department report that wages rose at an annual rate of 4.9 percent in the second quarter, above the 4.2 percent the agency estimated, was an unpleasant surprise for a market that had reached three- month highs on hopes of stable rates. For the first quarter, the department said labor costs jumped 9 percent – the largest quarterly rise in almost six years.
The market also found little solace in a report from the Institute for Supply Management that showed the services sector grew at a faster pace in August than economists forecast. An economy still showing this type of growth could make it easier for the Fed to justify a rate hike to fight inflation. The central bank left rates unchanged at its last meeting after a string of 17 straight increases; its next meeting is Sept. 20.
Stocks drifted even lower Wednesday afternoon after release of the Fed’s “beige book,” which found that while economic growth continued in the fall, five of the Fed’s 12 districts showed deceleration. The findings that the housing market slowed could also bolster the arguments that the economy could suffer if consumer spending cools as a result.
One of the market’s greatest fears is that although the economy might continue to slow, the Fed will resume its course of rate hikes as it seeks above all to forestall inflation.
The Dow Jones industrial average fell 63.08, or 0.55 percent, to 11,406.20. The tech-heavy Nasdaq composite index and the Standard & Poor’s 500 index showed steeper declines. The Nasdaq dropped 37.86, or 1.72 percent, to 2,167.84. The S&P 500 was down 12.99, or 0.99 percent, at 1,300.26.
