Wall Street falls as US inflation slows but remains hot

Wall Street falls as US inflation slows but remains hot thumbnail

NEW YORK Stocks are closing lower on Wall Street following a report showing that inflation is slowing. However, not as much as hoped. The S&P 500 dropped 0.7% Friday, marking its first loss in three weeks. The U.S. government reported that wholesale prices were 7.4% higher than they were a year ago in November. This was the reason for the weakness. This is a slower pace than October, but it was worse than economists expected. The stock exchange ”s painful fall this year was due to high inflation and the Federal Reserve’s economy-crunching reaction to it. The Treasury yields increased.

THIS AN EXCELLENT NEWS UPDATE. Below is the AP’s earlier story.

Stocks are falling on Wall Street Friday, and bond yields are rising following a report showing that inflation is slowing but not as much as expected.

The S&P 500 was 0.1% less in afternoon trading, after earlier shifting between small losses and gains. The Dow Jones Industrial Average was down 86 points, or 0.3%, at 33,696, as of 3: 06 p.m. Eastern time, and the Nasdaq composite was 0.1% higher.

Major indexes are headed for their first weekly loss in just three weeks.

Stocks around the globe initially fell after a U.S. government report revealed that wholesale prices were 7.4% higher than they were a year ago. Although it is a decrease in wholesale inflation from 8.1% in October, it was still a little higher than economists expected.

Wall Street’s painful fall this year was mainly due to high inflation in the country and the Federal Reserve’s economy-crunching reaction. The slowing of inflation since the summer’s peak has helped stocks recover some of their losses. It is still too high and the Federal Reserve will need to continue raising interest rates sharply to bring it under control.

Treasury yields erased earlier losses immediately after the release of the report. This was due to traders increasing their bets on how high the Fed would eventually raise interest rates. The central bank already raised its overnight key rate to a range between 3. 75% has increased its overnight rate to a range of 3.

The Fed’s next rate decision is set for next week. It is expected to raise rates by half a percentage point.

Friday’s economic data did not sway Wall Street’s expectations on that, not after several Fed officials hinted recently they may step down from their string of four straight hikes of 0. 75 percentage point. This would reduce the economic and market pressures. The Fed has stated that it may still raise rates above what the markets expect, but will not pause.

Higher interest rates can hurt the economy by making borrowing more expensive for households and companies. This forces them to reduce their spending. A recession can be caused by high rates. They also affect stock prices and other investments.

A separate report released Friday showed that Americans are reducing their expectations for future inflation. This is important for the Fed as it wants to stop a vicious circle where households rush to buy on fear that prices will rise. This buying activity only fuels inflation.

Households are forecasting inflation of 4.6% in the year ahead, according to the survey by the University of Michigan. That’s the lowest such reading in 15 months, though still well above where it was two years ago. Expectations for longer-run inflation remain stuck in the 2.9% to 3.1% range where they’ve been for 16 of the last 17 months, at 3%.

The University of Michigan’s preliminary reading showed that overall sentiment among consumers was stronger than economists had expected. This is good news for the economy as it relies on spending from such consumers. However, it can complicate the Fed’s task. If such spending is resilient, it could continue to push up inflation.

The last piece of data about inflation before the Fed makes its next decision is Tuesday. Economists expect that the consumer price index will show that inflation fell to 7.3% in October from 7.7% in October.

” “The two most important questions next year are how quickly inflation will drop and what amount it will need to drop for Fed to stop tightening,” foreign exchange strategists wrote in a BofA Global Research Report. “We are concerned markets too optimistic on both.”

The yield on the two-year Treasury, which tends to track expectations for Fed action, rose to 4. 34% from 4. 26% just before Friday’s inflation report was released. It was at 4. 31% late Thursday.

The yield on the 10-year Treasury, which helps dictate rates for mortgages and other important kinds of loans, rose to 3. 56% was 3. 49% on Thursday. After a pullback due to the U.S. inflation report, European stock markets closed higher.

Chinese benchmarks rose on Friday after reports that the government is considering new measures to help the ailing property sector. This has been a significant drag on growth for the past few years.

The relaxation of some China’s “zero COVID” rules is raising hopes that the economy will pick up momentum. However, experts warn that it will take several months for tourism and other businesses to recover from the disruptions caused by the pandemic. It has been a key source of global economic growth in the past.


AP Business Writers Elaine Kurtenbach and Matt Ott contributed.

Read More