The New York Stock Exchange ended in sharp decline on Thursday, stunned by high US inflation which raised fears of an acceleration in interest rate hikes from the Central Bank (Fed).
According to final results, the indices ended at the lowest of the session, the Dow Jones losing 1.5%, at 35,241.59 points. The tech-heavy Nasdaq fell 2.1% to 14,185.64 points. The S&P 500 dropped 1.8% to 4504.08 points.
Stocks looked gloomy, “as inflation is again higher than expected, further fueling expectations of a firm tightening of monetary policy from the Fed”, summed up analysts at Wells Fargo.
Inflation continued to accelerate in January in the United States, reaching 7.5% over one year (+0.6% over the month), its fastest pace for almost 40 years and more than what was expected. You have to go back to February 1982 to find such high annual inflation, according to the consumer price index published Thursday by the Labor Department. Over one year, energy prices increased by 27% and food prices by 7%.
Faced with this price increase and fears that the Fed will not be more strict in its monetary policy, bond yields on 10-year Treasury bills crossed the 2% mark on Thursday, for the first time since July 2019. They have climbed to 2.04%. Yields on two-year bills, reflecting investor fears of a faster Fed rate hike, jumped to 1.61%, flattening the curve between mid-term and long-term rates.
For Peter Cardillo of Spartan Capital, “this means the Fed could be more aggressive and, if it sees signs that wages are rising further in the next jobs report on March 4, it could raise rates by a half percentage point [0,5 %] suddenly,” said the analyst. The next Federal Reserve Monetary Committee meeting is scheduled for March 15-16.
Some analysts now fear that the Fed will raise rates on the spur of the moment without waiting for that official meeting date, as one of the members of the central bank’s Monetary Committee, James Bullard, suggested on Thursday.