breaking news Wall Street falls as US inflation slows but remains hot

A choppy day of trading on Wall Street ended Friday with stocks broadly down, after a new report showed inflation slowing less than expected days before Federal Reserve officials are expected to resume. raise interest rates.

The S&P 500 and the Nasdaq composite each fell 0.7%, while the Dow Jones Industrial Average fell 0.9%. Smaller company stocks fell even further, sending the Russell 2000 Index down 1.2%. The indices marked their first losing week in the past three.

The US government reported that prices paid at the wholesale level were 7.4% higher in November than a year earlier. That’s a slowdown from October’s wholesale inflation rate of 8.1%, but it was still slightly worse than economists expected.

“It looks like inflation has plateaued, but that says it’s still sticky and the Fed is most likely going to have to push harder,” said Quincy Krosby, chief equity strategist for LPL Financial. .

The country’s high inflation, along with the Federal Reserve’s economic response to it, were the main reasons for Wall Street’s painful fall this year. Stocks have recouped some of their losses recently as inflation has slowed since peaking this summer. But it remains too high, which increases the risk that the Federal Reserve will have to continue to raise interest rates sharply to fully control it.

Treasury yields climbed as traders stepped up bets on where the Fed will eventually raise interest rates. The central bank has already raised its key overnight rate to a range of 3.75% to 4%, from virtually zero last March.

Its next rate decision is scheduled for next week, and the general expectation is that it will raise rates another half a percentage point.

Friday’s economic data did not sway Wall Street’s expectations, not after several Fed officials hinted recently that they may pull back from their run of four straight 0.75 point hikes. percentage. Such a reduction would mean less additional pressure on markets and the economy. Even so, the Fed said it could still raise rates relative to market expectations before pausing.

Higher rates hurt the economy by making it more expensive for businesses and households to borrow money, forcing them to cut spending. If rates rise too much, it can cause a recession. They also drive down the prices of stocks and all sorts of other investments.

A separate report released on Friday showed that US households were lowering their inflation expectations a bit going forward. This is key for the Fed, which wants to avoid a vicious circle where households rush to make purchases for fear that prices will rise further. Such buying activity only increases inflation.

Households forecast inflation of 4.6% for the coming year, according to the University of Michigan survey. It is the lowest such reading in 15 months, although it is still well above what it was two years ago. Longer-term inflation expectations remain stuck in the 2.9% to 3.1% range where they have been for 16 of the past 17 months, at 3%.

Overall consumer sentiment was also stronger than economists expected, according to preliminary reading from the University of Michigan. This is good news for the economy, which derives most of its strength from the spending of these consumers. But it can also make it harder for the Fed. If this spending remains resilient, it could keep pressure on inflation.

The last big inflation data ahead of the Fed’s next move comes on Tuesday, when economists expect the consumer price index to show inflation slowed to 7.3% last month. , against 7.7% in October.

“The two most important questions for next year are how fast inflation will come down and how much will it have to come down for the Fed to stop tightening,” the currency strategists wrote in a report by BofA Global Research. “We fear that the markets are too optimistic on both.”

About 75% of S&P 500 stocks closed lower on Friday, with health care, technology and energy among the sectors that weighed the most on the market. The benchmark fell 29.13 points to 3,934.38. It ended down 3.4% for the week and is now down 17.5% this year.

The Dow fell 305.02 points to 33,476.46, while the Nasdaq slipped 77.39 points to 11,004.62. The Russell 2000 fell 21.63 points to 1,796.66.

The two-year Treasury yield, which tends to track expectations for Fed action, rose to 4.36% from 4.26% just before Friday’s inflation report. It was at 4.31% on Thursday evening.

The 10-year Treasury yield, which helps dictate rates for mortgages and other loans, rose to 3.58% from 3.49% on Thursday evening.

In overseas equity markets, European indices closed higher after recovering from a pullback following the US inflation report.

China’s benchmarks rose on Friday on reports that the government is planning new measures to support the ailing real estate sector, which has been a major drag on growth in recent years.

The relaxation of some of China’s ‘zero-COVID’ rules is also raising hopes that the economy will pick up steam, though experts say it will take months for tourism and other businesses to recover. recover from the disruptions of the pandemic. It has always been a major source of growth for the global economy.

(Edited by : Asmita pants)