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Dow falls by almost 700 points after inflation report reduces chance of a jumbo-sized rate cut

  • CNN
  • September 11, 2024
New York

CNN

 — 

Wednesday's Consumer Price Index report was the last bit of hope for investors clamoring for a half-point rate cut from the Federal Reserve when it meets next week.

That hope has now all but faded, and stocks are getting slammed as a result.

A customer shops in a Lowe's home improvement store in Los Angeles on August 20.

Eric Thayer/Getty Images

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Consumer inflation slows to lowest rate since February 2021

Hours after the August CPI report was released, which showed the annual pace of price increases cooled to 2.5%, the lowest level since February 2021, the Dow plunged by as much as 700 points, or 1.7%. The S&P 500 was down by 1.5% and the Nasdaq Composite moved 1% lower.

CNN's Fear and Greed Index, which measures seven barometers of market sentiment, moved further into "fear" territory.

On a monthly basis, prices rose 0.2%, unchanged from July.

But what appeared to garner a lot more attention was the 0.3% monthly rise of the core CPI gauge, which excludes food and energy. That exceeded economists expectations for a 0.2% rise. Fed officials pay close attention to core inflation readings because they can offer more clarity on where prices are headed longer term.

The higher-than-expected rise in core inflation will likely cause central bank officials to proceed more carefully when deciding whether to cut interest rates and by how much.

On Tuesday, traders were pricing in a 34% chance the Fed would cut rates by a half point. But after the CPI data was released Wednesday morning, traders priced in a 15% chance that would happen. Now they're pricing in an 85% chance of a quarter-point cut this month as well as a higher likelihood of a quarter-point cut at November's meeting.