TOP LINE The market closed lower on Wednesday, after it was reported that the Labor Department reported inflation unexpectedly increased to new levels in June, bringing to the already existing recession worries as investors think that the Federal Reserve will have to increase interest rates to curb rising prices for consumers.
Markets were hit by the scorching inflation report that showed the Dow Jones Industrial Average fell 0.7 percent, which is more than 200 points, and the S&P 500 lost 0.5% and the tech-focused Nasdaq Composite 0.2%.
Consumer prices were up 9.1 percent during the twelve months that ended in June, surpassing the 8.8 percent increase that analysts predicted. Inflation is currently at a record-setting 40-year high which is significantly higher than the 8.6 percent reported in May.
Core CPI that excludes volatile energy and food prices, was 5.9%–up from 5.2 percent in the previous month and well above the 5.7 percentage Wall Street analysts were expecting.
The latest inflation data will only strengthen the Federal Reserve’s decision to continue to aggressively raise interest rates. The majority of traders believe that the central bank will raise rates at its next meeting in the month of March by at least 75 basis points as per CME Group data.
The rates on bonds issued by the government soared after the inflation figures while the yield curve was flipped further by the second year, with the Treasury yield soaring into 3.16 percent on Wednesday. This is more than the 10-year rate that is just 3.3%.
Investors have also been assessing corporate earnings, with certain analysts anticipating that the economy will slow in the face of recession fears when the shares from Delta Air Lines fell over 4 percent following the announcement of impressive profits but with a significant rise in costs.
The inflation data released on Wednesday has been described as “staggering” and besides being “much higher than expected,” it shows the fact that “inflation hasn’t peaked whatsoever,” says Chris Zaccarelli, chief investment officer of Independent Advisor Alliance. “The Fed is poised to raise interest rates by 0.75% this month, and unlike prior consensus that they would begin raising rates by lesser amounts in the subsequent months,
Vital Knowledge founder Adam Crisafulli. He says the possibility that “disinflationary forces will gather steam” as inflation gradually comes back to normal later in the calendar year “but it will take a couple of months for this to come through in the actual government data.”