Stocks fell and U.S. government bond yields soared after fresh inflation data undermined investors’ bets on the pace of inflation slowing in August.
S&P 500 futures fell more than 2 percent in premarket trading on Tuesday. Stocks have edged higher in recent trading sessions, up 1.1 percent on Monday and up nearly 5 percent over the past week, as investors increasingly bet on the Fed’s ability to reduce inflation by raising interest rates without slowing the economy to the point of tipping over to a point. sharp decline.
But stronger-than-expected August data released on Thursday disappointed investors, sending stocks lower and prompting a rapid reassessment of how much the Fed may need to raise interest rates to rein in rising prices.
The two-year Treasury yield, which is sensitive to changes in the outlook for interest rates, shot higher after the numbers were released, rising to 3.7 percent, marking a new high for the year.
Solid labor market data earlier this month pointed to the economy’s resilience after several rate hikes this year. Coupled with the persistent message from policymakers that they have yet to complete their task of reducing inflation through higher rates, investors expect another big rate hike, by three-quarters of a percentage point, at next week’s Fed meeting. For the time being, some were betting on a half-point increase as the more likely option.
Following fresh inflation data, bets that the Fed will move aggressively when policymakers meet next week firmed, with some even betting the central bank could raise rates by a full percentage point, its biggest ever rate hikes since 1984.