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US stocks erased earlier gains after two Federal Reserve members said they expected the policy rate to surpass 5 per cent in 2023, curbing investors’ hopes for less restrictive monetary policy.

Wall Street’s blue-chip S&P 500, which had been up as much as 1.4 per cent earlier on Monday, closed 0.1 per cent on Monday, with pharmaceutical stocks featuring among the decliners. The tech-heavy Nasdaq Composite, at one point up almost 2.3 per cent, finished 0.6 per cent higher, with Tesla and chipmakers Nvidia and Advanced Micro Devices rising more than 5 per cent.

Both indices pared gains in afternoon trading following comments from the presidents of the US central bank’s San Francisco and Atlanta branches that the fed funds rate will need to surpass 5 per cent in order slow inflation down. Atlanta Fed president Raphael Bostic said the rate should hold above that watermark for “a long time.”

The hawkish comments on Monday contrast with the dovish signal traders inferred from US government data on Friday that showed employees’ average hourly earnings rose 4.6 per cent year on year on a seasonally adjusted basis in December, compared with 4.8 per cent the previous month, easing upward pressure on inflation. The world’s biggest economy added 223,000 jobs in the final month of 2022 — more than economists had expected but fewer than the 256,000 increase in November.

Government bonds rallied as a result, with the yield on the two-year Treasury note, which is sensitive to interest rate expectations, falling almost a quarter of a percentage point. On Monday, the yield on the note slipped a further 0.05 percentage points to 4.20 per cent. Bond yields move inversely to prices.

Read more on the day’s market moves.