Wall Street in its worst week since December

Another cold reminder that inflation remains hotter than hoped sent Wall Street skidding Friday, and stocks closed out their worst week since early December.

The S&P 500 fell 1.1% to cap its third straight weekly loss. The Dow Jones Industrial Average dropped as many as 510 points before closing down 336 points, or 1%, while the Nasdaq composite lost 1.7%.

Stocks have dropped through February as a stream of reports have shown everything from inflation to the job market to spending by shoppers is staying hotter than expected. That’s forced Wall Street to raise its forecasts for how high the Federal Reserve will have to take interest rates and then how long to keep them there.

Higher rates can drive down inflation, but they also raise the risk of a recession because they slow the economy. They likewise hurt prices for stocks and other investments.

The latest reminder came Friday after a report showed that the measure of inflation preferred by the Fed came in higher than expected. It said prices were 4.7% higher in January than a year earlier, after ignoring costs for food and energy because they can swing more quickly than others. That was an acceleration from December’s inflation rate, showing the wrong momentum, and it was higher than economists’ expectations for 4.3%.

It echoed other reports from earlier in the month that showed inflation at both the consumer and wholesale levels was higher than expected in January.

Other data Friday showed that consumer spending returned to growth in January, rising 1.8% from December. That’s pivotal because spending by consumers makes up the largest piece of the economy. A separate reading on sentiment among consumers came in slightly stronger than earlier thought, while sales of new homes improved a bit more than expected.

Such strength paired with the remarkably resilient job market raises hope that the economy can avoid a recession in the near term.

Stock markets abroad also mostly fell, with a 1.8% drop for France’s main index and 1.7% fall in Hong Kong.

Japan’s Nikkei 225 was an outlier, rising 1.3%. The nominee to head the country’s central bank, economist Kazuo Ueda, told lawmakers he favors keeping Japan’s benchmark interest rate near zero to ensure stable growth.