A rise in consumer prices prompted a sell-off on Wall Street as investors bet on an aggressive Fed response
The consumer price index rose 0.1 percent for August, beating economists’ expectations for a 0.1 percent decline. Of most concern to policymakers, core inflation – which strips out volatile items such as energy and food – edged up 0.6 percent for an annual increase of 6.3 percent, compared with 5.9 percent recorded in July.
Data from the Bureau of Labor Statistics ended with little relief for Fed officials after July’s reading that prices did not rise from the previous month.
Wall Street closed on higher-than-expected inflation numbers. The S&P500 was down 3.3 percent by Tuesday afternoon, while the Nasdaq Composite, which is stacked with technology companies more sensitive to changes in interest rate expectations, was down more than 4 percent.
In government debt markets, the yield on the two-year US Treasury, which is more sensitive than expected to interest rates, rose 0.21 percent to 3.78 percent, trading at 3.52 percent before the release of inflation data.
The odds that the Federal Reserve will choose a full percentage point rate hike in September rose to 22 percent, according to CME Group, from 0 percent earlier in the week. Most economists forecast another 0.75 percentage point rate hike, which would raise the Fed funds rate to a new target range of 3 percent to 3.25 percent.
US President Joe Biden and his economic advisers were also hoping for a drop in the headline numbers to schedule a “celebration” of his recently passed deflationary legislation, package of healthcare and climate policies. Trump was scheduled to pass the bill at an event later Tuesday, but Biden’s opponents in the Republican Party quickly seized on the optics.
Mitch McConnell, the Senate minority leader, wrote on Twitter, “You can’t get over this: Hours after this dire inflation report, the White House hosts a “low inflation” celebration.”
“Democrats have put our economy in crisis and now they are partying while families are paying. They couldn’t look more out of touch if they tried.”
Inflation has risen even as petrol prices have fallen in recent months. Earlier this summer, oil prices hit a record high of $5 a gallon following Russia’s invasion of Ukraine. The current national average is $3.70, according to the American Automobile Association.
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