Inflation Falls Short of Expectations – US Market Wrap

Stocks fell after data showed hotter-than-expected inflation and a slowdown in the labor market, amplifying the debate on whether the Federal Reserve will opt for a smaller rate cut next month or a pause after a large September reduction.

Following a rally to all-time highs, the S&P 500 took a breather. While Wall Street did not view Thursday’s economic data as calamitous, they did underline the Fed’s dilemma of returning inflation to the 2% target without overly chilling the labour market.  And that has added to the debate about the Fed’s next steps. For now, bond traders continued to bet the central bank will reduce the pace of cuts to 25 basis points in November.

Three Fed policymakers: Williams, Goolsbee and Barkin were unfazed by a higher-than-forecast consumer price index, suggesting officials can continue lowering rates. The outlier was Fed’s Bostic. In an interview with the Wall Street Journal he revealed that, in projections released in September, he had called for one additional quarter-point cut this year. The Fed has two remaining meetings in 2024.

The S&P 500 fell 0.2%. Most major groups retreated, though energy shares joined oil higher as the market awaited Israel’s response to Iran’s missile attack. Megacaps were mixed, with Nvidia up and Apple down. Tesla edged lower ahead of the launch of the company’s fully self-driving vehicle.

The yield on 10-year Treasuries was little changed at 4.07%.