Wall Street drops as hawkish Fed official comments weigh

Wall Street's main indexes ended modestly lower on Thursday in a choppy session as hawkish comments from a US Federal Reserve official and data showing the labor market remained tight led some investors to worry about more aggressive interest rate hikes.

St. Louis Fed President James Bullard said the central bank needs to keep raising rates given that its tightening so far "had only limited effects on observed inflation." Stocks have retreated in recent days after a strong month-long rally spurred by softer-than-expected inflation reports that raised hopes the Fed would temper its rate hikes, reported Reuters.

"The Fed is still talking up, generally, interest rates," said Paul Nolte, portfolio manager at Kingsview Investment Management in Chicago. "There might be some disagreement about the pace. But interest rates are not coming down anytime soon.”

Stocks reduced losses late in the session but the major indexes still ended in negative territory. The Dow Jones Industrial Average (.DJI) fell 7.51 points, or 0.02%, to 33,546.32, the S&P 500 (.SPX) lost 12.23 points, or 0.31%, to 3,946.56 and the Nasdaq Composite (.IXIC) dropped 38.70 points, or 0.35%, to 11,144.96.

Data showed the number of Americans filing new claims for unemployment benefits fell last week, suggesting the labor market remained tight. A report on Wednesday detailed strong retail sales growth last month, indicating the economy has weathered rate hikes.

Bets from traders of a 75 basis point hike at the Fed's next meeting climbed to 19% from about 15% a day earlier, according to the CME Group's FedWatch tool. Most investors still expect a 50 basis point increase.