Higher-than-expected US inflation pushes Treasury yields up and sparks market uncertainty
On Wednesday, stocks declined as higher-than-expected inflation data fueled concerns that the Federal Reserve may delay rate cuts, as reported by CNBC.
The S&P 500 dropped 0.27 percent to 6,051.97, while the Dow Jones Industrial Average fell 225.09 points, or 0.5 percent, to 44,368.56.
The Nasdaq Composite managed a slight gain of 0.03 percent, closing at 19,649.95.
US’ January Consumer Price Index (CPI) increased by 0.5 percent for the month, pushing the annual inflation rate to 3 percent. Both figures exceeded the forecasts of 0.3 percent and 2.9 percent from economists polled by Dow Jones.
Core CPI, which excludes food and energy prices, also rose more than expected, climbing 0.4 percent in January and 3.3 percent over the past 12 months.
Investors responded by selling off stocks during the trading session.
Sameer Samana, head of global equities and real assets at Wells Fargo Investment Institute, said the higher CPI “confirms investors’ anxiety regarding too-hot inflation that will keep the Fed on the sidelines (as opposed to cutting rates).”
He added that while risk markets could continue rising, their trajectory would be more volatile than in recent years.
The 10-year Treasury yield, which influences mortgage, auto loan, and credit card rates, surged to a session high of 4.66 percent.
Shares of major technology companies, including Amazon and Alphabet, declined. Consumer and bank stocks also retreated, as concerns about weaker economic growth and slower spending increased.
However, some stocks saw gains. Tesla, Apple, and Palantir advanced, limiting market losses. CVS Health surged nearly 15 percent after reporting strong fourth-quarter earnings.
Sentiment received a slight boost after US House Speaker Mike Johnson said the White House was considering reciprocal tariff exemptions on goods like pharmaceuticals and automobiles, according to Reuters.
Stocks of GM and Ford moved higher, along with Eli Lilly.
The US inflation data has shifted expectations for Federal Reserve policy. Markets now see a reduced likelihood of rate cuts in the near future and are considering the possibility of a rate hike instead.
Federal Reserve Chair Jerome Powell, testifying before the House Committee on Financial Services, acknowledged progress toward lowering inflation but said, “We want to keep policy restrictive for now.”
He emphasized that US inflation was still above the central bank’s 2 percent target, stating, “not quite there yet.”
Powell's remarks followed his testimony before the Senate Banking Committee on Tuesday, where he reiterated that the Fed was in no rush to lower interest rates.
Earlier in the day, before the CPI data was released, US President Donald Trump called for interest rates to be lowered.
Despite such calls, Powell affirmed that the Federal Reserve's decisions remain independent and are based on economic conditions, not external pressures, as reported by The Associated Press.
