NEW YORK: Wall Street stocks retreated on Thursday (Feb 16) on unexpectedly hot wholesale price inflation and hawkish comments from a US Federal Reserve (Fed) official, reigniting jitters over the central bank's future rate increase path.
The producer price index rose 0.7% in January, at a quicker pace than analysts predicted, while initial jobless claims slipped.
The data pointed to strength in the world’s biggest economy despite an aggressive campaign to cool demand, sparking concerns that the Fed could press on with larger interest rate increases to rein in inflation.
“With data like this, the Fed is going to keep raising rates, and none of us want that,” said Tim Ghriskey, senior portfolio strategist at Ingalls & Snyder in New York. “There are at least whispers now of the possibility of a 50 basis point hike at the next meeting.”
The Fed is seen pushing the benchmark rate above the 5% mark by May and keeping it above those levels till the year-end.
The Dow Jones Industrial Average fell 431.2 points, or 1.26%, to 33,696.85, the S&P 500 lost 57.19 points, or 1.38%, to 4,090.41, and the Nasdaq Composite dropped 214.76 points, or 1.78%, to 11,855.83.
Edward Moya of trading platform Oanda said investors are starting to “price in more Fed tightening”.
“This week was a rude awakening for the disinflation process,” he added. “Manufacturing and housing are still in a recession, but the rest of the economy isn’t looking too bad.”
Angelo Kourkafas of financial services firm Edward Jones said recent inflation data raises the question of whether the Fed needs to do more.
It “will have to be more forceful,“ he said, adding this was likely weighing on markets.
On Thursday, Cleveland Fed president Loretta Mester said current data has not changed her view that the central bank has to raise rates further and hold them there for some time.
“At our meeting two weeks ago ... I saw a compelling economic case for a 50-basis-point increase,” she said.
This would have been bigger than the quarter-point increase the Fed opted for.
Tesla Inc slid 5.7% as the electric vehicle maker said it was recalling 362,000 US vehicles and fixing them via an over-the-air software update after the US auto regulator said its Full Self-Driving Beta software may cause a crash.
Traders exchanged US$47 billion (RM207 billion) worth of Tesla shares, accounting for a fifth of all transactions in S&P 500 stocks.
Cisco Systems Inc rose 5.2% and hit a nine-month high after the network gear maker raised its full-year earnings forecast. – AFP, Reuters
Source: The Sun Daily
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