US stocks took a nosedive on Wednesday as traders grappled with a hotter-than-expected inflation report. Consumer prices surged 3.8% year-over-year in March, surpassing economists’ expectations and sparking concerns about the Federal Reserve’s next moves.
The Dow Jones Industrial Average plummeted over 450 points, while bond yields saw a significant increase, with the 10-year Treasury yield climbing 10 basis points to 4.474%. The unexpected rise in inflation, with consumer prices jumping 0.4% in March alone, has raised fears that the Fed may keep interest rates higher for longer than anticipated.
Investors had initially priced in substantial rate cuts at the beginning of the year, but the latest inflation data has drastically shifted expectations. The CME FedWatch tool now shows just a 6% chance of a 100-point rate cut this year, down from 61% a month ago. The odds of a June rate cut have been completely eliminated, with investors now seeing a 0% chance of a cut that month, compared to 57% a month prior.
Greg McBride, Bankrate’s chief financial analyst, expressed disappointment in the inflation numbers, stating, “You can kiss a June rate cut goodbye.” Seema Shah, the chief global strategist at Principal Asset Management, suggested that even a July rate cut may be unlikely following the recent inflation report.
The market reaction was swift, with US indexes tumbling shortly after the opening bell. In commodities, West Texas Intermediate crude oil rose to $85.70 a barrel, while gold slipped to $2,326.14 per ounce. The 10-year Treasury yield surged, and Bitcoin dropped to $67,768.
The unexpected inflation data has left investors on edge, reevaluating their expectations for Fed rate cuts and bracing for potential shifts in monetary policy moving forward.
