US stock indexes ended a volatile session on Wednesday after more-than-expected productive price inflation data and minutes of the Federal Reserve’s September meeting deepened concerns that policymakers could aggressively tighten monetary policy. Will continue to do
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On Tuesday, the Dow gained 36 points, or 0.1%, while the S&P 500 lost 0.7% and the Nasdaq Composite lost 1.1%.
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The 12-month rate of producer price inflation slowed to 8.5% from 8.7%, while the annual core rate, excluding food and energy, was unchanged at 5.6%, but the monthly rate rose 0.4% above forecast in September, and the monthly core rate increased by 0.4%. The PPI too rose 0.4 per cent in September.
Such figures have fueled fears that the Fed will continue its aggressive rate hikes to curb inflation, which could propel the US economy into recession.
Fed officials are concerned about ongoing and “unacceptably high” inflation as it “has not yet given an appreciable response to policy tightening”, minutes from the central bank’s last meeting showed on Wednesday.
“Many participants emphasized that the cost of taking too little action to reduce inflation may outweigh the cost of taking too much action,” Minutes said.
Fed sees ‘too much action’ versus high inflation as less risky than ‘too little’, show Minutes
“Ultimately, the Fed is seeking to reduce aggregate demand through labor market easing, which will reduce wage and services inflation even after the expected near-term disruption in the goods sector,” wrote Bob Miller, US Head of Fundamental Fixed Income on BlackRock, in a note.
“Said more bluntly, the pain is already evident in some of the most interest rate sensitive parts of the economy (housing), will be widespread across a lot of sectors and intensify over time. Relevant inflation metrics will pick up sharply over the next few months. In the absence of a fall, there is more pain to come,” Miller said.
Traders await US September consumer price data due Thursday at 8:30 a.m. Eastern Time. The September CPI reading, which tracks changes in prices paid by consumers for goods and services, is expected to show a growth of 8.1% from a year ago, up from the 8.3% year-on-year seen in August growth is slower. The core CPI, which excludes food and energy, is expected to grow at a year-on-year pace of 6.5 per cent from 6.3 per cent in August.
Liz Young, head of investment strategy at SoFi, doesn’t expect big downside surprises in CPI data as PPI prices came in above expectations and wage growth held steady in last Friday’s jobs report.
“If the core CPI comes up to expectations, 6.5% is still pretty troublesome,” Young told MarketWatch via phone. “So I don’t think this report is going to change the Fed’s trajectory in any way. I think the fresh story will continue that the market will continue to expect 75 basis points in November.
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“The Fed is very clear about working hard early, rather than waiting too long and not doing enough,” Young said. “They continue to say that they will coerce in the beginning, then not do enough because it will cause more problems down the road.”
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The one that started the year around 1.65% was trading at 3.901% on Wednesday, down 3.7 basis points after producer price inflation data and Fed minutes.
“For us, analyzing the numbers month by month is more important than just looking at the headline,” Zachary Hill, head of portfolio management at Horizon Investments, said in an interview.
“The way we’re thinking about it, the last three months have been annual [inflation] gives you a good idea of where the short-term trends are around inflation,” Hill said. “We think the Fed is going to see progress toward its 2% target. And unfortunately, based on various measures, we are nowhere near that today.”
Adding to market anxiety, and noting any Wednesday’s rally, was continued volatility in UK government bonds, when the Bank of England reiterated that it would stop supporting the market after Friday.
Investors have of late become concerned that severe stress could arise in the financial system as central banks switch from an era of zero or negative interest rates to increasingly higher borrowing costs as they try to tackle inflation.
Meanwhile, the International Monetary Fund on Tuesday downgraded its growth outlook for 2023, citing a long list of threats, including Russia’s war against Ukraine, chronic inflationary pressures and the lingering consequences of the global pandemic. Are included. It also suggested that a hike in interest rates could trigger a harsher global recession.
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“We believe the likelihood of a recession in 2023 is now better than 50%,” AXS Investments chief executive Greg Basuk wrote in a Wednesday note. “Last week’s market turbulence saw volatility at a level we haven’t seen since July, and we believe investors should be looking forward to another potential Fed interest rate hike of 0.75% in November.” Together we should be prepared for market volatility and uncertainty throughout Q4.” According to Basuk.
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— Jamie Chisholm contributed to this article.
Credit: www.marketwatch.com /