U.S. Stocks Retreat, Led by Banks

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All Eyes on Fed

The Federal Reserve already has begun withdrawing stimulus measures. Central bankers ended their $300 billion of Treasury purchases in October and are set in March to complete buying $1.43 trillion of housing debt. Economists including Nobel Prize-winner Paul Krugman are calling for the Fed to increase asset purchases.

The Federal Open Market Committee will release a policy statement at around 2:15 p.m. tomorrow in Washington, with interest rates forecast to remain near zero. Treasury yields climbed and the dollar strengthened on speculation the committee will hint at upcoming increases in its target for the overnight lending rate between banks, which has been in the zero percent to 0.25 percent for a year.

"If we see a couple more months of this data, and I suspect we will, it's going to spur people talking about the Fed at least jawboning rates on the upside," said William Greiner, chief investment officer at Scout Investment Advisors in Kansas City, Missouri, which manages $5.5 billion. "As long as inflation has a strong smack of a rise in commodity prices to it, it's going to be negative for the equity market."

To contact the reporters on this story: Elizabeth Stanton in New York at estanton@bloomberg.net and Rita Nazareth in New York at rnazareth@bloomberg.net