S&P 500 and Dow fall, inflation figures support bets on small Fed rate cut

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• Wednesday, September 11, 2024, 11:00 a.m. EDT

  Citigroup raises Fed forecast for September from 50 to 25 basis points

  A Wall Street firm that had called for the US Federal Reserve to cut interest rates by 50 basis points in light of weaker economic data no longer expects next week's monetary policy decision to lead to a reduction in the key interest rate.

  On Wednesday, the consumer price index (CPI) for August showed that “core prices,” which strip out the more volatile costs of food and gasoline, rose 0.3 percent from the previous month, above the 0.2 percent that economists had expected.

  Andrew Hollenhorst, Citigroup's chief U.S. economist, wrote in a note to clients that signs of sustained housing inflation, which are pushing core inflation higher than expected, “are probably just enough to convince the FOMC to cut interest rates by 25 percent.” [basis points] instead of 50 [basis points] at the meeting next week.”

  Still, Hollenhorst argues that “the overall trajectory of core PCE inflation (or Fed policy) is not materially altered by this reading.” Citi still expects the Fed to cut rates by 125 basis points this year, as the labor market slowdown will remain a key concern for the central bank.

• Wed, September 11, 2024, 10:25 a.m. EDT

  Interest rate-sensitive market areas lead to price declines

  Shares were significantly down on Wednesday morning.

  The benchmark S&P 500 (^GSPC) fell more than 1%, while the tech-heavy Nasdaq Composite (^IXIC) lost about 0.8%. The Dow Jones Industrial Average (^DJI) lost about 1.5%, or more than 600 points, extending losses from the previous session.

  Interest rate-sensitive areas of the market were among the day's biggest losers, as investors scaled back bets that the US Federal Reserve would opt for a deeper rate cut at its September meeting.

  Financial stocks (XLF) lost more than 2%, while real estate stocks (XLRE) fell more than 1.7%.

  

• Wed, September 11, 2024, 9:34 a.m. EDT

  Stocks open mixed

  U.S. stocks faltered on Wednesday as investors digested an inflation report that showed a slight decline in consumer price inflation in August and analyzed the first presidential debate between Donald Trump and Kamala Harris.

  The benchmark S&P 500 (^GSPC) fell about 0.1%, while the tech-heavy Nasdaq Composite (^IXIC) rose about 0.3%. The Dow Jones Industrial Average (^DJI) lost about 0.6%, or about 250 points, extending losses from the previous trading session.

• Wed, September 11, 2024, 9:15 a.m. EDT

  Bets on a 50 basis point Fed rate cut are fading

  It is immediately clear from the new inflation data from Wednesday morning that this will not be enough to persuade the US Federal Reserve to cut interest rates by 50 basis points at its meeting next week.

  Consumer Price Index data from August showed inflation fell to a three-year low, but “core” prices, which exclude the more volatile costs of food and gasoline, rose 0.3 percent from the previous month, more than the 0.2 percent economists had expected.

  Following a mixed monthly jobs report, the price data should help settle the debate over whether to expect a 0.5% or 0.25% cut in interest rates at the Fed's decision next week. And following a larger-than-expected month-on-month rise in core inflation, traders now favor a smaller rate cut from the Fed at its meeting next week.

  “The larger-than-expected rise in core inflation in August reflected positive surprises in housing and transportation services that we believe will not last,” Michael Pearce, Oxford Economics' deputy chief U.S. economist, wrote in a note to clients. “Nevertheless, the unwelcome news on inflation will distract somewhat from the Fed's renewed focus on the labor market and make it more likely that officials will stick with a more dovish approach to easing, starting with a 25 basis point cut next week.”

  Following the release of Wednesday's consumer price index, the probability that the Fed would cut interest rates by 50 basis points was just 15%, according to the CME FedWatch tool, compared to 44% the week before.

• Wed, September 11, 2024, 8:42 a.m. EDT

  Inflation: Consumer price increases fell slightly in August, investors expect interest rate cut in September

  A closely watched report on U.S. inflation showed that consumer price increases declined slightly year-on-year in August, according to the latest data from the Bureau of Labor Statistics released Wednesday morning.

  The consumer price index (CPI) rose 2.5% year-on-year in August, slowing from the 2.9% annual price increase in July. The annual increase was also in line with economists' expectations.

  The index rose 0.2 percent month-on-month, in line with both the monthly increase in July and economists' expectations.

  On a “core” basis, which excludes the more volatile costs of food and gasoline, prices rose 0.3% month-on-month and 3.2% year-on-year in August. On an annual basis, core prices rose 0.2% month-on-month and 3.2% year-on-year in July.