The S&P 500 fell nearly 1.4 percent as of closing on Tuesday, and the Nasdaq dropped 1.8 percent.
Prices rose 0.3 percent from December to January and were up 3.1 percent from the same period a year ago, according to the consumer price index (CPI) released Tuesday.
That’s higher than the 0.2 percent increase from December and 2.9 percent annual increase some economists had predicted.
“The consumer price index came in slightly hotter than expected this morning, but showed continued gradual progress in the fight against inflation,” said Julia Pollak, chief economist at ZipRecruiter.
“The major culprit was housing costs, which rose 0.6% in January and contributed over two-thirds of overall inflation during the month. Even though high interest rates have dramatically cooled activity in the housing market, prices have not fallen because housing inventory is so scarce.”
The higher-than-expected inflation print spurred fears on Wall Street that the Federal Reserve would delay potential interest rate cuts.
The economy has rebounded since the Fed launched its rate hike crusade to crush rampant inflation two years ago. While inflation has fallen from its 9 percent peak in summer 2022, the central bank’s 2 percent target remains elusive.
“Today’s CPI report caught a lot of people off guard – many investors were expecting the Fed to begin cutting rates and were spending a lot of time arguing that the Fed was taking too long to get started,” said Chris Zaccarelli, chief investment officer for Independent Advisor Alliance.
“This is only one month’s report and if next month’s report shows a decline in inflation then this will have been just a bump in the road, but if we see a new pattern of inflation stalling out at current levels (or worse increasing from here) then the stock market has further to fall.”
The sticky inflation data seems to have fueled concerns on Wall Street that the central bank, which signaled in December that it would cut interest rates this year, may not cut rates as early or as often as they had initially hoped.
The politically independent central bank is also increasingly becoming the target of partisan attacks as the 2024 election heats up.
Former President Trump is currently beating President Biden in polling on economic issues. Trump has an 11 points lead over Biden on who voters believe would best handle the economy, according to a recent Financial Times poll.
But the frontrunner for the Republican presidential nomination has attacked Fed Chair Jerome Powell as “political” and said the lifelong Republican he himself appointed might cut interest rates to boost Democrats in the upcoming election.
The Hill’s Taylor Giorno has more here.
