Stocks Drop Dramatically After Fed Releases Bad Inflation News

The latest consumer price index data has sent shockwaves through the economy, as inflation continues to defy expectations and exert pressure on the Federal Reserve to maintain its hawkish stance on interest rates.

The headline index rose by 0.4 percent in March compared to the previous month, surpassing economists’ forecasts of a 0.3 percent increase.

Over the past 12 months, the index has climbed by a staggering 3.5 percent, further underscoring the persistent nature of the inflationary pressures.

Core inflation, which strips out the volatile food and energy components, also exceeded expectations, rising by 0.4 percent for the month and matching the previous month’s figure.

On an annual basis, core inflation now stands at 3.8 percent, a far cry from the Federal Reserve’s target of 2 percent.

This concerning trend has been highlighted by Harvard economist Jason Furman, who pointed out that the last three months have seen core inflation rise at a 4.6 percent annual rate, the highest level for any period between August 1991 and 2020.

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The stubbornly high inflation figures have dealt a blow to those who had hoped that the Federal Reserve would soon pivot towards a more dovish monetary policy.

Many analysts had previously attributed the January spike in consumer prices to seasonal anomalies, anticipating a subsequent decline in inflation.

However, after three consecutive months of hotter-than-expected readings, such optimism appears misplaced.

The root cause of the ongoing inflationary pressures lies not in the Federal Reserve’s interest rate hikes, but rather in the excessive government spending and money printing that has characterized fiscal policy in recent years.

Despite the expiration of pandemic-era stimulus measures and the Biden administration’s post-pandemic spending spree, the federal government has continued to run substantial budget deficits, undermining the effectiveness of the central bank’s efforts to rein in inflation.

The impact of the inflation news has been felt acutely in the stock market, with all major indices experiencing significant losses.

As of this writing, the Dow Jones Industrial Average has shed almost 500 points, reflecting investors’ concerns about the potential for further interest rate hikes and the dampening effect on economic growth.

In light of the latest data, the Federal Reserve is likely to maintain its aggressive stance on interest rates, with the possibility of a rate cut being pushed back to the summer or even later.

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The market had previously priced in a 60 percent chance of a rate cut at the Fed’s June meeting, but this now appears increasingly unlikely.