01.08.201403:26:07UTC+00Volatility on Wall Street jumps on rate hike hints

Speculation on the scheduling of the Federal Reserve’s timing of an increase in interest rates spooked options traders on Thursday and drove a market’s “fear gauge” to record levels.

The CBOE Volatility Index or the VIX had a sharp increase of 27% on Thursday and closed at 16.95 to end July and record the largest monthly gain since the same month in 2011 of 47%. It previously hit 15.91, the highest since April 15 earlier on the same day. A primary mover of the gauge was the upbeat economic assessment of the US central bank which urged investors to apply more caution and seek to protect their positions.

Analysts believe that there is a growing debate from within members of the Fed’s policy committee on when rate hikes should begin. Data that weighs heavily on the bank’s decision have showed better than expected results with inflation nearing the target 2% and unemployment at a six year low of 6.1%. Original plans as revealed in comments of bank officials from earlier in the year indicate the middle of 2015 as the timing for any increase, but speculation is mounting over the possibility of a sooner date.

With the jump in volatility came a fall for major stock indexes such as the Dow Jones Industrial Index and the Standard & Poor’s 500. The Dow dropped 1.9%, equivalent to 317 points, to 16,563 while the S&P 500 fell 2%, or 39 points, to 1,930.

The VIX previously jumped 32% two weeks ago when the Malaysian Airlines passenger jet was shot down in eastern Ukraine and Israeli forces began to move towards Gaza. It was only the 22nd instance since 1990 that it had a single day change greater than 30%.