NEW YORK — U.S. stocks fell and bond yields jumped on Wednesday after consumer inflation for September came in hotter than economists expected, reviving talk that the Federal Reserve could raise interest rates as soon as this month.
The Nasdaq Composite dropped 0.6% in early trading while the S&P 500 fell 0.4%, according to Barron’s; Investopedia reported the Nasdaq down 0.5% and the S&P down 0.3%, with the Dow Jones Industrial Average roughly flat to slightly higher.
The inflation numbers
The Consumer Price Index rose 3.7% in September from a year earlier, up from 3.4% in August and above the 3.6% economists had expected, the Labor Department said Wednesday. Core CPI, which strips out food and energy, rose 2.6% year over year, above the 2.5% consensus estimate.
Jeffrey Roach, chief economist at LPL Financial, said in written commentary: “Inflation pressures are broadening beyond energy, suggesting the last mile back to target could remain bumpy and keep interest rates elevated.” He added that the report “complicates the Fed’s decision this month, as the road back to price stability is looking increasingly difficult to navigate.”
Markets price in a hike
The 10-year Treasury yield jumped about 8 to 10 basis points to around 5.30% after the report, near its two-decade high of 5.37% set last week, according to Investopedia and Reuters. The rate-sensitive 2-year yield rose roughly 13 basis points to about 4.90%.
According to the CME FedWatch tool, traders now see a 44% to 51.5% chance the Fed raises rates at its meeting in two weeks, up from about 22% before the report. For December, the odds of at least a quarter-point hike stand at about 96%, up from 88%.
The dollar index climbed to 102.75, an 18-month high, while gold fell 1.6% to about $4,088 an ounce, Reuters reported. Oil held near multi-year highs: West Texas Intermediate traded around $95 to $96 a barrel and Brent crude around $106, supported by continued Houthi attacks on Saudi targets.
What it means for ordinary people
The 10-year Treasury yield is the benchmark behind most consumer borrowing in the United States. When it rises toward 5.3%, mortgage rates, auto loans and credit-card interest rates tend to follow higher — bad news for anyone borrowing, but a modest boost for savers parking money in CDs and money-market accounts.
Higher oil prices feed directly into gasoline costs. With Brent crude above $105 a barrel, pump prices are likely to stay elevated into the winter driving season.
Markets will get another inflation signal on Thursday with the release of the September Producer Price Index for wholesale goods. This story is developing.
Sources: Reuters; Investopedia; Barron’s.
