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With interest rates set to be hiked following this growing inflation figure, the US market is waking up with a bearish reaction to the news.
The US Bureau of Labor Statistics (BLS) has released the core inflation data for the month of August, with the Consumer Price Index (CPI) coming in at 8.3% year on year. While this figure is down from the 8.5% in July, and the lowest figure since April of this year, the key components of data show inflation is still sky high.
While these figures show a moderate reduction, the index for all items less food and energy increased 0.6 percent in August, up 6.3% in the year-to-date period. The expectations from analysts surveyed by the Dow Jones had been expecting a 0.1% for overall inflation, with a rise of 0.3% for core inflation.
With the released figures, the fears of continuous aggressive tapering from the Federal Reserve is heightened and the market is reacting in tandem to this.
The futures tied to the Dow Jones Industrial Average (INDEXDJX: .DJI) slumped by 1.6% and shed 525 points following the release of the inflation data. S&P 500 (INDEXSP: .INX) futures also dropped more than 2% while Nasdaq 100 futures led the losses by 2.7%.
“The fact the SPX has rallied so much in the last few days will make the index especially vulnerable to a downdraft. The fact the sources of inflation were so widespread is another negative (it’s hard to pin the upside on any one category),” said Adam Crisafulli, founder of Vital Knowledge.
This latest inflation figure will come in handy as the Federal Reserve Open Market Committee (FOMC) is set to meet next week. There are expectations of a 75 basis point hike, the third of such increments that will be initiated by the Feds this year.
“Probably 75 (basis points) is the most likely play, but the market is pricing 79 basis points. So there’s a shot at 1,” said Michael Schumacher of Wells Fargo.
The Fed’s inflation target is from the 2 to 4% range, and Jerome Powell has expressed commitment to taking inflation down to this level.
US Inflation Data and Encompassing Market Reaction
With interest rates set to be hiked following this growing inflation figure, the US market is waking up with a bearish reaction to the news. While e-commerce giant, Amazon.com, Inc (NASDAQ: AMZN) dropped by 4.5% in the Pre-market to $130.65. Meta Platforms Inc (NASDAQ: META) is down 3.83% to $162.50.
The digital currency ecosystem is also showing extreme volatility in response to the inflation figures. Bitcoin (BTC) is changing hands at $21,428.58, down 4.04% in the past 24 hours to pare off the gains it has recorded in the past 7 days.
Ethereum (ETH), XRP, Solana (SOL), and Cardano (ADA) are all down by more than 3% in what seems as a broad-based offset to the gains of the past week. The inflation level is tilting the broader economic landscape, and the responses are not far-fetched.