Wall Street indexes fell sharply after a higher-than-expected January consumer inflation report pushed back expectations of imminent interest rate cuts.
The CPI increased above forecasts due to surging shelter costs.
This caused traders to lower bets on a May rate cut and boost odds of one in June instead.
Terry Sandven, chief equity strategist at U.S. Bank Wealth Management, said, “Equities are in retreat mode following a still inflationary CPI report.”
“The higher for longer inflation is a setback for the Federal Reserve,” he continued.
Bob Elliott, chief investment officer at Unlimited Funds, said, “Many Federal Reserve governors have come out in the last couple of weeks and given various indications that the cuts expected by the market in the first half of the year may have been premature. Now the CPI data are certainly reaffirming that picture.”
Treasury yields rose across the board to two-month highs, pressuring rate-sensitive megacap tech stocks.
Most chip stocks also dropped. Real estate, consumer discretionary and utilities led sector losses.
The small-cap Russell 2000 declined as well.
The inflation data reaffirmed Fed officials’ views that earlier rate cut expectations may have been premature.
The sell-off came after a prior revision briefly relieved investors about inflation’s trajectory.
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