Hawkish Fed Talk Hems In U.S. Stocks

Updated from 8:58 a.m. EDT

U.S. stocks were dropping at the open Tuesday as traders took cover amid hawkish comments from the Federal Reserve chief and a plunge in China's market overnight.

The Dow Jones Industrial Average was losing 61 points, or 0.5%, to 12,219, and the S&P 500 was giving up 8 points, or 0.6%, to 1354. The Nasdaq Composite was surrendering 26 points, or 1%, to 2433.

As the new day began, traders were dealing with a speech from Fed Chairman Ben Bernanke, who said the central bank was on guard against an overly rapid increase in prices.

The Fed chief said the jump in oil costs "has added to the upside risks for inflation and inflation expectations," even as his expectations for a "substantial downturn" have simultaneously diminished. He added that the Fed "will strongly resist an erosion of longer-term inflation expectations, as an unanchoring of those expectations would be destabilizing for growth as well as for inflation."

At the same time, Dow Jones quoted Dallas Fed President Richard Fisher as saying he is forecasting "anemic" growth, but not a recession, and Reuters said the official would be willing to accept a slower economy if that meant inflation would be contained. Also, the Boston Fed's Eric Rosengren reportedly said inflation was running at an "undesirable" level.

Those comments would appear, once again, to suggest that the Fed won't cut interest rates again following its 325-point easing campaign over the past few months. Some experts have even projected that the Fed could hike rates in the not-too-distant future amid the inflationary worries.

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