Wall Street’s main indexes hit an over one-week low on Wednesday, as a hotter-than-anticipated inflation reading added to concerns that the Federal Reserve would not cut interest rates anytime soon.
U.S. consumer prices increased more than expected in January, reinforcing the Federal Reserve’s message that it was in no rush to resume cutting interest rates amid growing uncertainty over the economy.
In the 12 months through January, the CPI increased 3.0% after advancing 2.9% in December. Economists polled by Reuters had forecast the CPI gaining 0.3% month-on-month and rising 2.9% year-on-year.
“It’s now calling into question not only whether or not the Fed will cut in the second half of this year … but now it puts on the table potentially the next move even being one to the upside for rates,” said Alex Coffey, senior trading strategist at Charles Schwab.
“It brings all options back to the table and likely pushes out even further that discussion of rate cuts.”
Traders are now fully pricing in just one more 25 basis point rate reduction this year. Before the data, they saw an about 40% chance of another similar-sized move, as per LSEG data.
Wall St slips on megacap declines ahead of Powell’s testimony
Fed Chair Jerome Powell also begins his second day of testimony before Congress at 10 a.m. ET.
On Tuesday, Powell had reiterated that the U.S. central bank is in no rush to cut its short-term interest rate again.
January’s reading is the last inflation reading before any direct impact from Trump’s tariff measures, which went into effect this month.
Trump had slapped an additional 10% tariff on Chinese goods last week and levied tariffs on all steel and aluminum imports on Monday.
His trade advisers are also finalizing plans for the reciprocal tariffs on every country that charges duties on U.S. imports.
The Cboe Volatility Index, known as Wall Street’s “fear gauge,” rose 0.5 points to 16.89, its highest in a week.
Most megacaps such as Microsoft and Nvidia fell over 1% each.
At 9:36 a.m. ET, the Dow Jones Industrial Average fell 440.05 points, or 0.99%, to 44,153.60, the S&P 500 lost 56.05 points, or 0.92%, to 6,012.78 and the Nasdaq Composite lost 175.63 points, or 0.89%, to 19,468.23.
All 11 S&P 500 sectors traded lower, with rate-sensitive real estate and utilities leading losses.
The economically sensitive Russell 2000 smallcap index dropped 1.5%.
Among individual movers, Lyft dropped 12.8% after the ride-hailing company forecast current-quarter gross bookings below estimates. Bigger rival Uber also fell 2.6%.
Super Micro Computer advanced 5.3% after the server maker said it believes it will be able to file delayed annual and quarterly reports with the U.S. Securities and Exchange Commission by February 25.
CVS Health advanced 12.6% after the healthcare conglomerate beat fourth-quarter profit estimates.
Declining issues outnumbered advancers by a 7.31-to-1 ratio on the NYSE and by a 3.85-to-1 ratio on the Nasdaq.
The S&P 500 posted four new 52-week highs and 16 new lows, while the Nasdaq Composite recorded 15 new highs and 103 new lows.
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