New York: US stocks plunged and Treasury yields spiked after a hot inflation reading all but assured another large Federal Reserve rate increase.
The S&P 500 sank 2 per cent, trading at levels not seen in two years this week as the Fed aggressively throttles the economy in an effort to tamp down inflation. The growth-sensitive Nasdaq 100 dropped almost 3 per cent as rates markets boost wagers for hikes at the next two policy meetings.
A key gauge of US consumer prices hit a 40-year high in September, showing the central bank’s efforts have so far had little effect. Two-year Treasury yields soared and the dollar rallied in anticipation of more outsize rate increases.
Market bets on rates now lean toward back-to-back 75 basis-point hikes at the next two Fed meetings. They now expect the central bank to push rates past 4.85 per cent before the tightening cycle ends. The current rate is 3.25 per cent.
The latest data added to evidence the harsh monetary medicine has yet to take hold and comes on the heels of last week’s payrolls figures that showed unemployment rate at a five-decade low in September.
Risk assets have been under pressure all year as central banks around the world attempt to tame runaway inflation. The latest data added to evidence the harsh monetary medicine has yet to take hold and comes on the heels of last week’s payrolls figures that showed unemployment rate at a five-decade low in September.
“This isn’t the CPI report markets or the Fed were hoping for,” said James Athey, investment director at abrdn. “Inflation pressures remain stubbornly high. The reality is that for the foreseeable future the Fed is locked into a stance of unequivocal hawkishness. This will support bond yields and the US dollar but its yet more bad news for equities.”
Meanwhile, UK markets remained in turmoil almost two weeks after the government unveiled a plan to drastically cut taxes.
Speculation leaders may reconsider the controversial program sent the pound higher and yields on benchmark gilts tumbling more than 25 basis points.