U.S. stock indexes opened lower after fresh inflation data showed that price pressures are proving more persistent than investors anticipated, denting hopes that central bankers may ease their course of interest-rate increases.
The S&P 500 tumbled 2.1% Tuesday. The tech-focused Nasdaq Composite plummeted 2.8% and the Dow Jones Industrial Average declined 1.6%.
The U.S. Labor Department’s release of the consumer-price index for August, which showed annual inflation at 8.3% that month, was the last major inflation reading before the Federal Reserve’s meeting next week. Consumer prices rose 8.5% in July from a year earlier, slower than the 9.1% annual increase in June, which was a four-decade high.
The latest figures showed that inflation is easing, but at a slower pace than investors and economists had anticipated. Economists surveyed by The Wall Street Journal had been expecting consumer prices to rise 8% annually in August.
Investors were hoping that officials would consider easing their pace of interest-rate increases if data continues to show inflation moderating. The inflation data seemed to undercut those hopes. After the release, stock futures fell, bond yields rose and the dollar rallied.
“This idea that we’re going to get to a soft landing gets less and less likely if the Fed needs to do more work in order to curtail the inflationary pressures,” said Matt Forester, chief investment officer of Lockwood Advisors at BNY Mellon Pershing.
Fed Chairman Jerome Powell said earlier this month that the central bank is squarely focused on bringing down high inflation to prevent it from becoming entrenched as it did in the 1970s, firming traders’ expectations for a third consecutive 0.75-percentage-point rate rise next week.
In bond markets, the yield on the benchmark 10-year Treasury note ticked up to 3.443% from 3.361% Monday. Yields and prices move inversely. The rise in bond yields was an additional sign that investors were expecting higher interest rates after the data.
In energy markets, Brent crude, the international benchmark for oil prices, fell 0.8% to $93.23 a barrel.
In currencies, the WSJ Dollar Index, which measures the greenback against a basket of other currencies, rose 0.9%. The strong dollar has weighed on the value of other currencies against the greenback this year. The euro fell 0.9%, and the British pound declined 1.07%.
Overseas, the pan-continental Stoxx Europe 600 fell 0.5%. Shares of British online grocer Ocado plunged after it warned of a decline in full-year sales as inflation hits consumers’ spending ability.
In Asia, major indexes closed mixed. South Korea’s Kospi Composite rallied 2.7% while Hong Kong’s Hang Seng declined 0.2%.