- U.S. stocks fell sharply on Wednesday after another record of higher-than-expected inflation.
- The average of the three major stocks fell, with the Dow Jones Industrial Average dropping more than 400 points.
- The odds of a June rate cut are decreasing as the Fed appears poised to continue its fight against inflation.
U.S. stocks tumbled on Wednesday as markets took in a higher-than-expected inflation report and the latest Federal Reserve meeting minutes, prompting traders to back off on expectations for the Fed to cut interest rates this year.
All three benchmark indexes closed lower, with the Dow Jones Industrial Average dropping more than 400 points. Bond yields soared, with the 10-year Treasury note jumping 18 basis points to 4.546%.
Inflation rose at an annualized rate of 3.5% in March, slightly higher than the 3.4% rise expected by economists. Core inflation, which excludes volatile food and energy prices, rose at an annual rate of 3.8%, beating expectations for a 3.7% rise.
Inflation has been higher than expected over the past three months, undermining investors’ expectations for the Federal Reserve to cut interest rates this year. The probability of a June rate cut fell to 16%, according to the CME FedWatch tool, down from the 56% chance priced in on Tuesday.
Bank of America maintained its outlook for a June rate cut, but said it had “low confidence” given the latest CPI data. Barclays has revised its forecast for just one 25 basis point (bp) rate cut this year, down from its earlier forecast of one rate cut every other month. Goldman Sachs announced that it would adjust the reduction from three levels to two levels as inflation remains high due to insurance costs.
“The Fed should wait longer for evidence that the gains made in combating price pressures are durable before turning to accommodative policy,” Jose Torres, senior economist at Interactive Brokers, said in a statement. It won’t happen,” he said. “Today’s report reflects a reversal in the evolution of inflation, with goods and commodities turning from friends of disinflation to enemies of inflation.”
At last month’s policy meeting, Fed officials still expected three rate cuts in 2024. But newly released minutes of the Fed’s March policy meeting show that central bank officials remain cautious about the recent upward trend in inflation.
Officials commented that inflation data over the past few months had been “disappointing” and said it was “not appropriate to cut interest rates until there was greater confidence that inflation was back on track toward 2%,” according to minutes of the meeting. I expected it,” he added.
“The Fed has always given more weight to backward-looking indicators, especially since the Fed is now trying to remove the scars of a ‘temporary’ inflation debacle,” Ian Shepherdson, chief economist at Pantheon Macroeconomics, said in a note Wednesday. But I am accepting it.” “There is a growing risk that the Fed will wait too long and move too slowly.”
Here are the U.S. indices as of Wednesday’s close at 4 p.m.
Here’s what else happened today:
In Commodities, Fixed Income and Cryptocurrencies:
- West Texas Intermediate crude oil rose 1.21% to $86.26 a barrel. Brent crude, the international benchmark, rose 1.25% to $90.54 a barrel.
- Gold fell 1.05% to $2,328.30 per ounce.
- The yield on the 10-year US Treasury rose 18 basis points (bp) to 4.546%.
- Bitcoin rose 0.86% to $69,397.
