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Topline
The stock market extended an end-of-week selloff on Friday after the Labor Department reported inflation unexpectedly returned to record highs last month—feeding concerns that the Federal Reserve may embark on a more aggressive campaign to temper rising prices, even if it risks stunting economic growth.
Federal Reserve Board Chairman Jerome Powell testifies before a Senate committee in January.
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Key Facts
Though at one point positive in pre-market trading, the Dow Jones Industrial Average plunged 750 points, or 2.3%, to 31,537 by 10 a.m. ET on Friday, while the S&P 500 fell 2.6% and the tech-heavy Nasdaq 3%.
Prompting a sudden plunge, the Labor Department reported early Friday that consumer prices rose at 8.6% in May—surpassing a record high 8.5% from March despite economist projections calling for a softer 8.3% increase.
In emailed comments, Peter Earle of the nonpartisan American Institute for Economic Research called the report “very troubling” and evidence that the Fed’s efforts to combat spiking prices by raising interest rates have done “little to nothing.”
The Fed is “now between a rock and a very hard place,” says Earle, noting that acting more aggressively in raising interest rates, which tend to hurt corporate earnings, heightens the risk of a recession.
In a note to clients Friday, Bank of America economist Aditya Bhave said yield curves flattened after the report—a sign the Fed may need to “hike aggressively to cool inflation” at the expense of longer-term economic growth.
Bhave said there’s now “some probability” of a 75 basis-point hike in July—higher than the half-point hike officials said they were considering late last month.
This is a developing story. Please check back for updates.
Further Reading
Inflation Unexpectedly Spiked 8.6% In May—Hitting 40-Year High As Gas Prices Surge Again (Forbes)
Dow Drops 600 Points Ahead Of Looming Inflation Report (Forbes)
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