Another hot reading of inflation kept the bulls pinned to the ground Tuesday. All eyes now are on tomorrow’s conclusion of the Federal Reserve’s latest policy meeting, where America’s central bank is expected to raise its benchmark interest rate once more.
The Bureau of Labor Statistics reported this morning that U.S. producer prices rocketed 10.8% year-over-year (and 0.8% month-over-month) in May, driven in large part by high energy prices. That was a higher MoM rate than April’s revised 0.4%, and roughly around economist expectations.
“This report adds to evidence of price pressures remaining elevated across the board, suggesting more near-term inflation,” says Barclays economist Pooja Sriram.
In other words, there’s nothing to suggest that the Federal Reserve will back off from its projection that it will raise the Fed funds rate by another 50 basis points on Wednesday. In fact, Wall Street is increasingly betting they’ll go farther.
“The Fed is suggesting that they are willing to induce a recession to prevent the inflation surge,” says Gene Goldman, chief investment officer of Cetera Investment Management. “The CPI and PPI reports will make the Fed raise rates more than markets had anticipated just last week [75 basis points instead of 50]. This is analogous to the Fed ripping off the band-aid and raising rates fast upfront (instead of slowly pulling it off).”
Goldman adds, however, that the key thing to watch is the terminal rate – while the Fed might get more aggressive now, it also might end up raising rates by less later in the rate-hiking cycle.
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The S&P 500 dug a little deeper into bear-market territory, declining 0.4% to 3,735, while the Dow Jones Industrial Average was off 0.5% to 30,364. The Nasdaq Composite actually managed to finish in positive territory, with a modest 0.2% gain to 10,828.
Oracle (ORCL, +10.4%) was one of the trading session’s brightest spots, as the enterprise software firm easily topped quarterly profit estimates and delivered better-than-expected guidance for its upcoming fiscal year.
Other news in the stock market today:
- The small-cap Russell 2000 slipped 0.4% to 1,707.
- U.S. crude oil futures shed nearly 1.7% to settle at $118.93 an ounce.
- Gold futures fell 1% to end at $1,813.50 an ounce.
- Bitcoin’s slide continued, with the cryptocurrency off 4.3% to $22,156.03. (Bitcoin trades 24 hours a day; prices reported here are as of 4 p.m.)
- The recent selloff in cryptocurrencies forced …….