Wall Street ends mixed after swerving on inflation report
Several sharp reversals for stocks left Wall Street mixed on Tuesday after a report showed inflation is continuing to slow, but perhaps not as quickly or as smoothly as hoped.
The S&P 500 finished the day virtually where it started, edging down by less than 0.1%, after swerving between gains and losses. The Dow lost 156 points, or 0.5%, while the Nasdaq went on the widest run. It finished 0.6% higher after ricocheting between a loss of 1.1% and a gain of 0.9%.
The action was more decisive in the bond market, where yields climbed as investors braced for the Federal Reserve to get firmer on interest rates to combat inflation.
The report was highly anticipated because inflation and the Federal Reserve’s response to it have been at the center of Wall Street’s struggles for more than a year. Inflation has been cooling since a summertime peak, and investors are trying to guess how quickly and smoothly a decline could happen to the Fed’s 2% target.
Tuesday’s report showed that inflation slowed to 6.4% in January from its peak of 9.1% in June. The hope on Wall Street has been for a continuing slowdown to get the Federal Reserve to pause its hikes to interest rates and perhaps begin contemplating cuts to them.
High rates can drive down inflation but also hurt investment prices and raise the risk of a severe recession. The Fed has already hiked its key short-term rate to a range of 4.50% to 4.75%, up from virtually zero a year ago.
Nearly half of January’s month-over-month inflation came from an area where Fed Chair Jerome Powell has said he sees easing pressure in the pipeline: housing and other shelter-related prices.
But on the downside for markets, the improvement in inflation wasn’t by as much as economists expected. That could encourage the Fed to be more aggressive on interest rates than it’s been saying. The Fed has indicated it envisions at least a couple more increases before holding rates at a high level for a while.
“While inflation is heading in the right direction, there is a long and bumpy road ahead to price stability,” said Andrew Patterson, senior economist at Vanguard.