Stocks decline over inflation evidence

Investors worry Fed will stay aggressive with interest rates

NEW YORK — Wall Street tumbled Thursday, and stocks fell by the most in four weeks after more evidence that high inflation is staying stickier than expected.

The S&P 500 dropped

1.4 percent after a report said inflation at the wholesale level slowed by less last month than economists forecast. It echoed a report on prices at the consumer level from this week that suggested inflation isn’t cooling as quickly and as smoothly as hoped.

The Dow Jones Industrial Average lost 431 points, or 1.3 percent, while the Nasdaq composite dropped 1.8 percent.

Stocks have been churning recently as worries about sticky inflation joust against data suggesting the economy remains more resilient than feared. The worry is that persistently high inflation will push the Federal Reserve to get more aggressive on interest rates. Higher rates can drive down inflation but also drag on investment prices and raise the risk of a recession.

Such fears have been most clear in the bond market, where yields have leaped this month as traders raise their forecasts for how high the Fed will take interest rates.

The yield on the two-year Treasury, which tends to track expectations for Fed action, rose to 4.67 percent from less than 4.60 percent before the inflation report’s release and from less than 4.10 percent this month. It’s near its highest level since November, when the yield reached levels last seen in 2007.

The inflation report thudded onto Wall Street along with a batch of other data painting a mixed picture of the economy.

Fewer workers applied for jobless benefits last week than expected, a sign that layoffs remain low across the economy. That’s good news for workers and another signal of strength for the job market, but the Fed worries it could add upward pressure on inflation.

Other reports showed a measure of manufacturing activity in the mid-atlantic region plunged this month, while homebuilders broke ground on fewer homes last month than economists expected.

The reports cast some doubt on Wall Street’s hopes that the Federal Reserve could manage to slow the economy just enough to stamp out inflation but not so much that it creates a recession.

The S&P 500 fell 57.19 points to 4,090.41. The Dow fell 431.20 to 33,696.85, and the Nasdaq dropped 214.76 to 11,855.83.