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Investors are concerned that the stronger-than-expected inflation report will delay the Fed's interest rate cuts, which it has signaled will occur later this year.
new york
CNN
—
U.S. stocks fell sharply on Wednesday after March inflation data came in better than expected.
The blue-chip Dow Jones Industrial Average closed down 422 points, or 1.1%. The S&P 500 fell 1%, and the tech-heavy Nasdaq Composite Index fell 0.8%.
U.S. consumer prices rose again last month, rising 3.5% in the 12 months through March, according to the latest Consumer Price Index data released Wednesday by the U.S. Bureau of Labor Statistics.
This was a sharp increase from February's 3.2% and the highest annual rise in six months. Gasoline and shelter costs accounted for more than half of the monthly increases, but prices rose in nearly every major category last month, the BLS said.
Investors are worried that the stronger-than-expected and glowing report will force the Federal Reserve to postpone interest rate cuts that it has hinted at later this year.
When the Fed raises interest rates or signals that interest rates may remain high for an extended period of time, markets tend to fall. This is because when companies have higher borrowing costs, other investments can look better compared to stocks. Some sectors, such as housing and utilities, may be hit harder because they are more sensitive to interest rate fluctuations.
“Today's important CPI results likely determined the fate of June's CPI.” [Fed] The likelihood of a rate cut is currently very low,” Seema Shah, chief global strategist at Principal Asset Management, said in a note on Wednesday. “Even if inflation cools to a more comfortable level next month, there is likely enough caution now within the Fed that a rate cut in July may be too much, and at that point By then, the U.S. election will begin to interfere with Fed decision-making.”
According to the CME FedWatch tool, only 16.5% of investors expected a rate cut at the June Fed meeting. This was down from 56% the day before.
Some 57% of investors also think interest rates will remain unchanged at the July meeting. The rate has more than doubled since Tuesday.
Meanwhile, the minutes of the US Federal Reserve Board (FOMC) meeting in March revealed that some Fed officials are concerned about persistently high inflation.
Minutes of the meeting released on Wednesday said central bank officials “recognized that significant progress has been made over the past year” despite disappointing inflation data for January and February. “Some noted that the recent rise in inflation was based on a relatively broad basis.” Wednesday afternoon.
The yield on the 10-year U.S. Treasury, which is the benchmark for mortgage and loan rates, rose by more than 4.5% after the release of the March inflation report.
Wednesday's market decline was widespread as investors worried about the impact of prolonged interest rates on the economy.
Bank stock prices fell. Bank of America, Wells Fargo and JPMorgan Chase, which report first-quarter results on Friday, all closed lower on Wednesday.
Tech stocks such as Microsoft, Amazon and Apple also closed lower.
But EY chief economist Gregory Daco said investors may be getting ahead of themselves. Two more CPI reports and two consumer spending reports are expected to be released before the Fed's June policy meeting.
“Many Fed officials will likely adjust their views after observing the value of PCE inflation, their preferred measure of inflation, later this month,” he said in a note Wednesday.
Still, President Joe Biden acknowledged there is “more work to do” to keep costs down.
“Today's report shows that inflation has fallen by more than 60% from its peak, but we still have more work to do to lower costs for hardworking families. “Even though household goods prices are lower than they were a year ago, housing and food prices remain too high,” Biden said in a statement Wednesday morning.
Levels may still change slightly as the stock price settles after the trading day.