US Stocks Tumble After Inflation Comes In Above Expectations

Major U.S. stock indexes finished the day Tuesday with huge losses as investors reacted to inflation data that cast doubt on hopes of the Federal Reserve cutting interest rates in the near future.

The Dow Jones Industrial Average dropped 1.35% on Tuesday, down more than 500 points, with the S&P 500 and the Nasdaq dropping 1.37% and 1.80%, respectively. The rapid drop follows a disappointing consumer price index report released Tuesday morning by the Bureau of Labor Statistics showing that inflation decelerated to only 3.1% instead of the 2.9% that was expected.

The higher-than-expected inflation report casts a shadow on investor hopes of rate cuts to the federal funds rate, which would ease credit conditions and lower interest rates across the economy. The Federal Reserve has set the federal funds rate to a range of 5.25% and 5.50%, the highest in 23 years, in an effort to combat high inflation.

The Dow Jones had its worst day since March 2023 due to the loss, according to NBC News. Yields on two-year Treasury bonds rose above 4.63%, and ten-year yields increased to over 4.29%.

Inflation has remained persistently above the Fed’s target of 2% ever since peaking under President Joe Biden at 9.1% in June 2022. Following the spike in June 2022, the lowest year-over-year inflation rate that the U.S. has reported is just 3.0%, which occurred in June 2023.

The Fed projected in December that it would be cutting the federal funds rate to 4.6% by the end of 2024, indicating possibly three rate cuts. Markets have been keen to watch statements from Fed officials like Fed Chair Jerome Powell for clues on future cuts, with the Dow Jones having a similar quick sell-off in early February when Powell’s comments during a “60 Minutes” interview were cut off by a voiceover.