Wall Street slides as inflation data fuels Fed worries

Wall Street’s main indexes have fallen more than 1.0 per cent as a surge in consumer spending and inflation in January sparked concerns that the Federal Reserve will stick to its hawkish stance for longer.

The personal consumption expenditures (PCE) price index, the Fed’s preferred gauge of inflation, shot up 0.6 per cent last month after gaining 0.2 per cent in December.

In the 12 months through January, the PCE index accelerated 5.4 per cent after rising 5.3 per cent in December.

“This PCE number, which to me is a vital number, clearly suggests that the Fed has more to do. Now you’re looking at probably half of 1.0 per cent rise in March,” said Phil Blancato, chief executive officer at Ladenburg Thalmann Asset Management in New York.

“In other words, what this means is the Fed is not done, further pressure on yields to push higher, the battle against inflation has not yet won, and volatility for the stock market.”

Consumer spending, which accounts for more than two-thirds of US economic activity, jumped 1.8 per cent last month, the Commerce Department said.

Economists polled by Reuters had forecast a 1.3 per cent growth.

The three major US indexes are on track for weekly losses despite a modest rebound on Thursday, with the blue-chip Dow set for a fourth consecutive week of declines.

After a strong January, equity markets have retreated this month as a slew of economic data fed into worries that the US central bank might have to keep interest rates higher for longer amid signs of sticky inflation and a resilient labour market.

Traders of futures tied to the Fed’s policy rate added to bets that the US central bank will raise rates at least three more times this year, with the peak rate seen in the range of 5.25 per cent-5.5 per cent by June.

In early trading, the Dow Jones Industrial Average was down 350.29 points, or 1.06 per cent, at 32,803.62, the S&P 500 was down 48.59 points, or 1.21 per cent, at 3,963.73, and the Nasdaq Composite was down 176.97 points, or 1.53 per cent, at 11,413.43.

All the 11 major S&P sectors fell in early trading, with technology and consumer discretionary leading losses.

Megacap stocks including Tesla Inc, Amazon.com Inc and Nvidia Corp slid in the range of 1.2 per cent and 2.5 per cent as the yield on the benchmark US 10-year Treasury notes rose.

Separately, January home sales data and the University of Michigan’s final reading of consumer sentiment for February are due later in the day.

Boeing Co slid 3.8 per cent after the Federal Aviation Administration said the plane maker temporarily halted deliveries of its 787 Dreamliner jets.

Warner Bros Discovery Inc fell 2.3 per cent after reporting a greater than expected quarterly loss due to one-off charges related to Warner Bros-Discovery merger.

Block Inc rose 3.4 per cent after the payments firm said it is slowing the pace of hiring this year to control costs and gave an upbeat forecast for a key profit metric.

Declining issues outnumbered advancers for a 9.10-to-1 ratio on the NYSE and 5.60-to-1 ratio on the Nasdaq.

The S&P index recorded no new 52-week highs and three new lows while the Nasdaq recorded eight new highs and 47 new lows.