Markets Tumble as PPI, Jobless Claims and Fed Speeches Raise Fear of More Rate Hikes
By Markets were rattled on Thursday after the producer price index (PPI) reading for January came in higher than expected, raising fears of persistent inflation and possible further rate hikes from the Federal Reserve. The Dow Jones Industrial Average fell 431 points, or 1.3%, to less than 33,700, as the S&P 500 and tech-heavy Nasdaq shed 1.4% and 1.8%, respectively.[0]
In January, wholesale prices rose 0.7% month-on-month, following a 0.5% decrease in December.[1] Dow Jones had previously polled economists, who projected that the PPI for January would increase by 0.4%. This number came in hot, topping average economist estimates of 5.5%.[2] On a seasonally-adjusted month-over-month basis, PPI was up 0.7% versus estimates for a 0.4% increase.
On Thursday and Friday, jitters ran through the markets as the January Producer Price Index was higher than expected, jobless claims were lower than anticipated, and St. Louis Federal Reserve President James Bullard urged a half-point rate hike.[3] The markets have estimated an 18% probability that the Federal Reserve's March meeting will result in a 50-basis-point rate hike, with an 82% likelihood that the hike will be 25 basis points.[4] A week ago, the likelihood of a half-point increase was only 9% — meaning the perceived probability of the Fed resuming its rate hikes has doubled in the span of a week.[4]
Last week, Jerome H. Powell, Federal Reserve Chair, addressed the Economic Club of Washington, D.C. and commented that the journey towards reducing inflation is likely to be tumultuous. He stated, “It's not going to be a smooth ride. It's most likely going to be bumpy.”[5] He noted that this was evidenced by the unexpectedly high January jobs report, and if the economic data remains stronger than was initially projected, they would definitely raise interest rates higher than is currently expected.[6]
Cleveland Fed President Loretta Mester also admitted she saw a “compelling” case for a second half-point rate hike earlier this month, rather than the quarter-point hike ultimately authorized.[7] She warned that while inflation readings have moderated since last summer, “The level of inflation matters, and it is still too high.[8]
0. “Dow closes more than 100 points higher on Friday, but notches third straight week of losses on rate fears: Live updates” CNBC, 17 Feb. 2023, https://www.cnbc.com/2023/02/16/stock-market-today-live-updates.html
1. “Dicey inflation news raises odds of drastic move by Fed that could spell recession” Washington Examiner, 19 Feb. 2023, https://www.washingtonexaminer.com/policy/economy/dicey-inflation-reports-recession-odds-fed-rates
2. “Uh-Oh: Why These 2 Key Inflation Indicators Are Cause For Worry – SPDR S&P 500 (ARCA:SPY)” Benzinga, 16 Feb. 2023, https://www.benzinga.com/news/23/02/30945850/uh-oh-why-these-2-key-inflation-indicators-are-cause-for-worry
3. “Dow Posts Gains Before Holiday Weekend; Indexes Closed Mixed For The Week” Investor's Business Daily, 17 Feb. 2023, https://www.investors.com/market-trend/stock-market-today/stock-market-cant-catch-a-break-time-to-cash-out-auto-retailer-stock
4. “S&P 500, Dow, Nasdaq finish mixed as Fed debate continues” Seeking Alpha, 17 Feb. 2023, https://seekingalpha.com/news/3937828-sp-500-dow-nasdaq-finish-mixed-as-fed-debate-continues
5. “Inflation data will test ‘disinflation' optimism: What to know this week” Yahoo News, 12 Feb. 2023, https://news.yahoo.com/stock-market-week-ahead-consumer-price-index-inflation-retail-sales-172419890.html
6. “CPI: Prices rise 6.4 percent in January, seventh month of easing inflation” The Washington Post, 14 Feb. 2023, https://www.washingtonpost.com/business/2023/02/14/inflation-easing-cpi-january/
7. “Strength in U.S. Producer Prices and Hawkish Fed Speak Weighs on Stocks” Barchart, 16 Feb. 2023, https://www.barchart.com/story/news/14274433/strength-in-u-s-producer-prices-and-hawkish-fed-speak-weighs-on-stocks
8. “Dow Falls 400 Points After Fed Official Warns Hot Inflation Data Serves As ‘Cautionary Tale’” Forbes, 16 Feb. 2023, https://www.forbes.com/sites/jonathanponciano/2023/02/16/dow-falls-400-points-after-fed-official-warns-hot-inflation-data-serves-as-cautionary-tale/
