U.S. stocks suffered their worst one-day decline since June 2020 following worse-than-expected
inflation data that raised expectations for more aggressive interest rate hikes by the U.S.
Federal Reserve.
The Dow Jones Industrial Average fell more than 1,200 points, or 3.9%, while the S&P 500
dropped 4.3%, and the technology heavy Nasdaq index declined 5.5% on the day.
The plunge in equities came immediately after the U.S. Labor Department announced that the
Consumer Price Index (CPI) increased 0.1% in August from July, after no change in the
previous month.
On an annualized basis, inflation in the U.S. grew 8.3%, more than the median estimate of
8.1%. Traders and investors had been looking for signs that inflation has peaked and is
beginning to decline.
Swaps traders are now fully pricing in an interest rate increase of three-quarters of a percentage
point when the Federal Reserve meets next week, with bets rising for a similar sized rate hike in
November, and the Federal Reserve’s key lending rate reaching 4.3% by year’s end.
The latest U.S. inflation reading came amid debate about the outlook for the global economy
and how likely a recession is within the next year. Bank of America’s (BAC) latest survey
showed that the number of investors expecting a recession has reached its highest level since
May 2020 during the depths of the COVID-19 pandemic.
