Markets Dip as Fed Official Puts Interest Rate Hike on the Radar

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.

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