NEW YORK ( TheStreet) -- U.S. markets, though up from a steep drop in the morning, closed in the red Thursday after St. Louis Fed President James Bullard speculated of a Federal Reserve interest rate increase as early as March.
The Dow Jones Industrial Average was down 0.18% to 16,846.13. The S&P 500 fell 0.12% to 1,957.22. The Nasdaq closed almost flat, down 0.02% to 4,379.05.
Bullard, speaking with Fox Business News, said he expects inflation to climb to 2% by year's end as unemployment drops below 6%, two factors likely to push the Fed to tinker with rates.
Though inflation concerns have picked up, Prudential Financial market strategist Quincy Krosby believes the measure is still under control.
"Until we start to see, above all else, the job market continuing to gain momentum, burning off some of the slack in the unemployment landscape and wages moving higher, you do have inflation contained," she told TheStreet. However, she noted that inflation still needs to be closely monitored, particularly given small business owners have reported an increase in hiring and wages.
Peter Cardillo, chief market economist at Rockwell Global Capital, acknowledged that while inflationary pressure at the producer level has been, in some cases, passed on to the consumer, wage inflation remains dormant.
"We reiterate that until higher labor costs become a problem, the chances of the Fed's inflation target being met are still slim," Cardillo said in a note.
Jobless claims dipped by 2,000 in the week of June 21 to 312,000, compared to a consensus estimate of 310,000, a drop supporting the bulls' case for healthy economic expansion.
Personal spending ticked up a less-than-expected 0.2% compared to economists' estimates of 0.4%, sparking concerns first-quarter sluggishness may have carried into the second quarter. The reading, however, rose from April's flat reading.
In business news, Barclays (BCS) shares dove 7.4% to $14.55 on the news the company was charged with fraud in the sale and marketing of a "dark pool," an alternative trading platform used for large stock sales.
Alcoa (AA - Get Report) rose 2.7% to $14.94 after it signed an agreement to buy aerospace jet engine components company Firth Rixson from Oak Hill Capital Partners for $2.85 billion in cash and stock.
Shares of General Motors (GM) were down 0.51% to $36.90 after the company notified dealers in the U.S. and Canada to stop selling 2013 and 2014 Chevrolet Cruze sedans because of a potential defect in airbags made by airbag supplier Takata.
Bed Bath & Beyond (BBBY) tumbled 7.2% to $56.70 after reporting first-quarter earnings short of analysts' estimates.
Shares of GoPro (GPRO), the maker of wearable sports cameras, rose 30.6% to $31.34 after it opened for trading Thursday. Late Wednesday, GoPro sold 17.8 million shares at $24 each in its IPO.
After the bell, Nike (NKE) climbed 3.3% to $79.42 after fourth-quarter earnings of 78 cents a share beat by 3 cents.
Benchmark U.S. stock indices gained ground on Wednesday, taking soft domestic economic data in stride.
Cardillo wrote that while the outlook remains positive for stocks, the chances of a summer dull trading range is likely to supersede positive second-quarter earnings in a few weeks.
-- By Keris Alison Lahiff and Andrea Tse in New York