The US stock market experienced a sharp decline on Wednesday following an unexpected rise in inflation data for March. The Dow closed 422 points lower, the S&P 500 lost 1%, and the Nasdaq Composite fell by 0.8%. The Consumer Price Index data released by the Bureau of Labor Statistics showed a 3.5% increase in consumer prices for the 12 months ending in March, the highest annual gain in the past six months. This surge in prices, particularly in gas and shelter costs, has raised concerns among investors about the Federal Reserve delaying the anticipated rate cuts.
Investors are worried that the hotter-than-expected inflation report will prompt the Federal Reserve to postpone its planned rate cuts, which has previously been hinted at for this year. The increase in inflation has raised doubts about the likelihood of a rate cut at the Fed’s June meeting, with only 16.5% of investors expecting a cut compared to 56% just a day earlier. The 10-year Treasury yield surged past 4.5% after the release of the March inflation report, signaling concerns about higher interest rates affecting the economy. Despite the market drop, some economists believe investors may be jumping the gun, as there are still more key reports to be released before the Fed’s June policy meeting.
President Joe Biden acknowledged the challenges posed by high prices and inflation, stating that there is still more work to be done to alleviate the burden on hardworking families. Although inflation has decreased from its peak, costs for essential items like housing and groceries remain high. As the stock market settles post-trading, fluctuations in levels may still occur, reflecting the ongoing uncertainty and volatility surrounding inflation and interest rates.
