Wall Street stocks retreated Thursday on unexpectedly hot wholesale price inflation and hawkish comments from a US Federal Reserve official, reigniting jitters over the central bank’s future rate hike path.
The producer price index rose 0.7 percent 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 hikes to rein in inflation.
The Dow Jones Industrial Average slumped 1.3 percent to close at 33,696.85.
The broad-based S&P 500 Index fell 1.4 percent to 4,090.41, while the tech-heavy Nasdaq Composite Index plunged 1.8 percent 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,” Kourkafas 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 hike the Fed opted for.