A Fed Voting Member Said Interest Rates Should Be Higher. Stocks Fell

Stocks fell on Thursday as chipmakers dropped despite solid earning reports. Comments from a Federal Reserve voting member also weighed on indexes.

The S&P 500 fell 0.51%, while the tech-heavy Nasdaq Composite underperformed, dropping 1.47%. The Dow Jones Industrial Average fell 0.20%.

CNBC noted that that VanEck Semiconductor ETF fell more than 4%, dragged by Arm, Micron Technology and Advanced Micro Devices, as well as the U.S.-listed shares of SK Hynix.

Elsewhere, Dallas Federal Reserve President Lorie Logan said interest rates should be “modestly” higher to help inflation return to the 2% goal.

Logan, who is a voting member in the Federal Open Market Committee this year, said inflation is still an issue for U.S. households and policymakers must act accordingly.

“I currently believe modestly higher interest rates would better balance the outlook and risks for the FOMC’s dual mandate goals,” she said during a speech in Houston. “Every month of above-target inflation has compounded the strain on Americans’ budgets.”

Her comments stand in contrast with those of New York Federal Reserve President John Williams, who said he sees multiple signs that inflation has peaked, something that would allow policymakers to refrain from hiking interest rates.

“There are encouraging reasons to expect that inflation has peaked and should edge down in coming quarters,” Williams told business leaders.

He went on to say he expects overall inflation to decrease to around 3.25% by the end of the year and move towards its 2% goal next year, getting there in 2028.

Williams also said the war in Iran, tariffs and more technology spending contributed to rising energy prices, but those factors will ease.

“With inflation running high, it is imperative that we restore it to the Federal Reserve’s 2 percent longer-run goal on a sustained basis. The current stance of monetary policy is well positioned to do that,” Williams noted.

Despite Logan’s comments, financial markets have sharply reduced expectations that the Federal Reserve will raise interest rates later this month after new government data showed inflation eased more than economists anticipated in June.

According to data released Tuesday by the U.S. Bureau of Labor Statistics, the Consumer Price Index (CPI) rose 3.5% over the past 12 months through June, slowing from the 4.2% annual increase recorded in May. While inflation remains above the Federal Reserve’s long-term 2% target, the report suggested that the pace of price increases is cooling.

Additional data showed that wholesale prices unexpectedly fell in June as well. Concretely, the producer price index saw a 0.3% decrease for the month. Analysts expected the rate to be unchanged.