James Bullard, President of the Federal Reserve Bank of St. Lewis, at the Jackson Hole Economic Symposium, in Moran, Wyoming, US, on Thursday, August 3. 22, 2019.
David Paul Morris | bloomberg | Getty Images
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US stocks are reeling from the ever-hot economy – and hawkish rhetoric from the Federal Reserve.
What you need to know today
- The US Producer Price Index, which measures inflation at the wholesale level, rose 0.7% in January. It was the biggest increase since June, and 0.3 percentage point higher than economists had expected.
- Tesla Tesla 362,758 cars are equipped with driver assistance pilot software. The company has warned that the software, known as Full Self-Driving Beta, could cause vehicles to crash.
- forefront Cryptocurrency is making a resurgence in 2023, according to Bernstein analyst Gautam Chhugani. Investors may view the recent regulatory actions in the US as less drastic than they expected.
Looking at the January numbers, the US economy is running at full steam. Quick recap: the lowest unemployment rate in 53 years. Revival in consumer spending despite higher prices. And overnight, we found that the producer price index rose the most in eight months. This almost bizarrely strong economy suggests that inflation – while still declining – remains uncomfortably high and sticky.
For a while, it seemed as though markets could live with that — and even embrace it as a new normal, where economic growth could comfortably co-exist with inflation above 2%. With each hotter-than-expected inflation report, the markets rose.
Until yesterday. The markets finally picked up. The Dow Jones Industrial Average fell 1.26%, the S&P 500 lost 1.38% and the Nasdaq Composite fell 1.78%. “It should come as no surprise to see the market take a breather as the Fed’s pessimistic hopes for the coming months fade,” said Mike Lowengart, head of model portfolio creation at Morgan Stanley.
In fact, it’s not just that the Fed’s doves may be flitting away. It’s that hawks pounce on it. Markets widely expected, and set a rate hike of 25 basis points for the next two Fed meetings. Yesterday, those expectations were badly shaken.
street. Lewis Fed Chair James Bullard said Thursday that he “was an advocate of a 50 basis point hike… and argued that we should get to the level of rates the committee deems sufficiently restrictive as quickly as possible.” Cleveland Fed President Loretta Mester echoed Bullard’s hawkishness, saying she wants even higher interest rate increases. Neither Mester nor Bullard voted this year on the FOMC, but their sentiments could indicate that the Fed is increasingly determined to stifle inflation.
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Correction: This report has been updated to specify the exact US trading day it discusses. An earlier version used the wrong day of the week.