U.S. stocks fell sharply on Wednesday after federal inflation data for March was hotter than previously anticipated.
The Dow Jones dropped by more than 500 points by 12 p.m. EST, in part driven by declines in shares of Home Depot and Intel. The benchmark S&P 500 Index also lost about 1 percent, and the Nasdaq Composite dropped the same amount.
Home Depot was down by more than $10, or 2.8 percent, and Intel was down about $1, or 2.6 percent, as of Wednesday morning. Boeing BA, Goldman Sachs, and Cisco also contributed to the Dow’s Wednesday decline
It came as U.S. consumer prices picked up again in March, increasing by 3.5 percentage points for the month, according to the latest Consumer Price Index (CPI) data released by the U.S. Bureau of Labor Statistics on Wednesday. That’s up from February’s CPI of 3.2 percent, and some analysts noted that March’s figures show it’s the highest annual inflation gain in six months.
There have been concerns that higher-than-anticipated inflation would force the Federal Reserve to hold off on cutting interest rates after suggesting that the first cuts could come later in 2024.
The CPI report Wednesday “likely sealed the fate for the June meeting with a cut now very unlikely,” Seema Shah, chief global strategist at Principal Asset Management, said in a note Wednesday.
“Even if inflation were to cool next month to a more comfortable reading, there is likely sufficient caution within the Fed now to mean that a July cut may also be a stretch, by which point the U.S. election will begin to intrude with Fed decision making,” the note added, reported CNN.
Investors reacted to the latest inflation data by shifting bets away from an anticipated rate cut in June toward one in September. They also now see the Fed reducing its benchmark overnight interest rate by only half a percentage point this year, down from rate-cut expectations that had been as high as a full percentage point.
“When you start to see month after month of inflation not falling, and tipping up if you look at the six-month changes, I think that has given the Fed pause ... There has been a change in sentiment,” Karen Dynan, a Harvard University economics professor, told Reuters on Wednesday.
Thomas Barkin, president of the Federal Reserve Bank of Richmond, told Reuters last week that another month of disappointing data after higher-than-expected readings in January and February could change things significantly. The minutes of the March meeting of the policy-making Federal Open Market Committee (FOMC) will also be released on Wednesday, possibly detailing emerging policy divisions.
“I don’t think any one month should make that much of a difference,” said Mr. Barkin, one of the five regional bank presidents with a vote this year on rates policy. But “if you get another month that looks like January or February, that takes you in a very different direction in terms of how forward-leaning you are.”
Biden and Trump React
Wednesday’s report drew reactions from the two leading 2024 presidential candidates, with former President Donald Trump attacking his predecessor over the high inflation numbers.“INFLATION is BACK—and RAGING!,” the former president wrote on Truth Social. “The Fed will never be able to credibly lower interest rates, because they want to protect the worst President in the history of the Untied States!”
Meanwhile, President Joe Biden issued a statement that accused “corporations, including grocery retailers” of making “record profits” and that they should use those profits “to reduce prices.” His statement didn’t provide any details on how those companies would be able to do that.
The president then accused Republicans of wanting to “slash taxes for billionaires and big corporations, while helping special interests and Big Pharma raise prices. I won’t let them.”
His statement acknowledged there is “more to do” to keep inflation-related costs down for Americans.
“Today’s report shows inflation has fallen more than 60 percent from its peak, but we have more to do to lower costs for hardworking families. Prices are still too high for housing and groceries, even as prices for key household items like milk and eggs are lower than a year ago,” he said.
