New York CNN —
Wednesday’s Consumer Price Index report was the last bit of hope for investors clamoring for a half-point rate cut from the Federal Reserve when it meets next week.
That hope has now all but faded, and stocks are getting slammed as a result.
Hours after the August CPI report was released, which showed the annual pace of price increases cooled to 2.5%, the lowest level since February 2021, the Dow plunged by as much as 700 points, or 1.7%. The S&P 500 was down by 1.5% and the Nasdaq Composite moved 1% lower.
CNN’s Fear and Greed Index, which measures seven barometers of market sentiment, moved further into “fear” territory.
On a monthly basis, prices rose 0.2%, unchanged from July.
But what appeared to garner a lot more attention was the 0.3% monthly rise of the core CPI gauge, which excludes food and energy. That exceeded economists expectations for a 0.2% rise. Fed officials pay close attention to core inflation readings because they can offer more clarity on where prices are headed longer term.
The higher-than-expected rise in core inflation will likely cause central bank officials to proceed more carefully when deciding whether to cut interest rates and by how much.
On Tuesday, traders were pricing in a 34% chance the Fed would cut rates by a half point. But after the CPI data was released Wednesday morning, traders priced in a 15% chance that would happen. Now they’re pricing in an 85% chance of a quarter-point cut this month as well as a higher likelihood of a quarter-point cut versus a half point at November’s meeting.
Investors generally prefer when interest rates are lower because it means companies can borrow money more cheaply, which often increases profitability.
Wednesday’s market moves are a stark contrast to Monday’s, when the Dow, S&P 500 and Nasdaq all closed 1.2% higher. Large market swings like these are far from unusual for the month of September, which has historically been a volatile month for stocks.
This story is developing and will be updated.
