Dollar Rises, Treasuries Slide on Yellen Remarks, Prices Data

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Is There Enough U.S. Inflation for Fed to Raise Rates?

The dollar rose, while Treasuries fell after Federal Reserve Chair Janet Yellen said she expects to raise interest rates this year and a report showed inflation firmed. U.S. stocks equities dropped in the final half hour of trading before a holiday weekend.

The Standard & Poor’s 500 Index lost 0.2 percent at 4 p.m. in New York, with all of the drop coming in the final 30 minutes to cut in half a third weekly gain. The Bloomberg Dollar Spot Index rose 0.8 percent, extending its best week since September 2011. The 10-year Treasury yield increased two basis points to 2.21 percent.

Yellen expects to raise interest rates this year if the economy meets her forecasts, with a gradual pace of tightening to follow. While the labor market is nearing full strength, “we are not there yet,” she said Friday. Delaying first increase until employment and inflation return to the Fed’s objectives “would risk overheating the economy,” Yellen said.

“The comment that a hike would be gradual might’ve eased some fears that maybe rates were going to increase quickly once they began,” Joe Bell, a Cincinnati-based senior equity analyst at Schaeffer’s Investment Research Inc., said by phone. “We’ve pushed up against some resistance and we’re consolidating here. Even with positive news, the reaction was always going to be moderate.”

The S&P 500 advanced 0.2 percent in the week and closed Thursday at an all-time high. The gauge has gained 2 percent in May. U.S. markets are closed Monday for the Memorial Day holiday.

Inflation Data

The dollar rose and Treasuries fell earlier after data showed the cost of living excluding food and fuel rose at a faster pace than expected in April, signaling inflation is moving toward the Fed’s goal. Mixed data have prompted investors to push back estimates for when the Fed will begin raising rates, helping to drive equities to all-time highs.

The core consumer-price index climbed 0.3 percent, the biggest gain since January 2013, according to the Labor Department. Reports Thursday showed sales of existing homes in April unexpectedly dropped, while factory data indicated the manufacturing industry remains tepid this month.

“Any time you do get a little bit stronger data, people kind of flinch,” Matt Maley, an equity strategist at Miller Tabak & Co. in Newton, Massachusetts, said by phone. “Their first reaction is that the Fed is getting what it wants to raise rates.”

The Bloomberg dollar index, which tracks the greenback against 10 major peers, has climbed 2.6 percent this week, the most since June 2013. The barometer had plunged for five straight weeks after reaching the highest level in data going back to 2005.

Bonds, Europe

Shorter-term notes led losses among Treasuries, with three-year yields rising five basis points to 0.99 percent. Benchmark 10-year notes capped a weekly decline.

In Europe, the Stoxx 600 slipped to halt a four-day rally. The index capped its biggest weekly gain since April 10, as Executive Board member Benoit Coeure said the European Central Bank will increase bond buying in May and June.

Following talks with Greek Prime Minister Alexis Tsipras, German Chancellor Angela Merkel told Greece there’s no alternative to dealing with creditors as it seeks to unlock bailout funds.

Gains in German bonds left the 10-year bund yield, the euro area’s benchmark, two basis points lower for the week. In the previous four weeks the yield surged to 0.62 percent on May 15 from 0.08 percent on April 17 amid a global debt rout.

Oil retreated after the dollar advanced,with West Texas Intermediate for July delivery dropping 1.7 percent to settle at $59.72 a barrel in New York. Brent for July settlement slid $1.17, or 1.8 percent, to end the session at $65.37 a barrel on the London

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