U.S. stocks stumbled Thursday morning as investors digest fresh inflation data that showed prices increased at a slower annual rate in December, a report that was in line with expectations from economists.
The S&P 500 (^GSPC) fell 0.6%, while the Dow Jones Industrial Average (^DJI) declined 0.4%. The technology-heavy Nasdaq Composite (^IXIC) slid down about 0.8%.
U.S. Treasury yields ticked down. The yield on the benchmark 10-year U.S. Treasury note fell to 3.4% from the 3.5% Thursday morning. The dollar index fell 0.51% to $102.66.
The moves came after data from the Bureau of Labor Statistics showed prices in December decreased 0.1% over the prior month but increased 6.5% over the prior year. That was in line with expectations, as year-over-year inflation cooled from 7.1% a month earlier.
Core CPI, excluding volatile food and energy components, prices climbed 5.7% year-over-year and 0.3% over the prior month. The core CPI reading came in line as expected from Bloomberg economist forecasts.
The report will factor heavily into the Federal Reserve’s next monetary policy meeting, which starts Jan. 31. Central bankers have made clear they aren’t done with interest rates increases. Fed Chair Jerome Powell stressed on Tuesday the importance of stable inflation, which could lead the central bank to take actions that are necessary, even if not popular.
On Wednesday, Boston Federal Reserve leader Susan Collins supported a 0.25 point interest rate increase at the central bank’s next meeting. Echoing those remarks, Philadelphia Fed President Patrick Harker said on Thursday that he thinks rate increases should be 25 basis points “going forward.”
Fed policymakers have taken an aggressive path that included four consecutive three-quarter point adjustments. The Fed slowed down with a half-point rate move in December, but some market strategists aren’t betting the central bank will make changes to their interest rate decisions.
“To clarify, this CPI print should not change Fed expectations for 25bps hikes in both February and March,” Andrew Tyler, US Market Intelligence team at JP Morgan, wrote in a note to clients.
“While recognizing that inflation expectations are lower now, the Fed’s concern is likely to be that, given the relative strength of the US Consumer, that you could see inflation accelerate higher if lending conditions ease,” he added.
Chair of the Board of Governors of the Federal Reserve System Jerome H. Powell participates in a panel during a Central Bank Symposium at the Grand Hotel in Stockholm, Sweden, January 10, 2023. TT News Agency/Claudio Bresciani/via REUTERS
Elsewhere, initial jobless claims in the first week of 2023 came in lower at 205,000 compared to expectations of 215,000, while continuing jobless claims also came down to 1.63 million compared to the prior week of 1.694 million.
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