As markets brace for the Fed’s interest rate hike next week, which will have a negative impact on consumer demand, U.S. stocks fell on the news that inflation remains persistently high.
As of 12:30 p.m., the Dow Jones Industrial Average is down 891 points, or 2.71 percent, to 31,486.89.
This decline occurred immediately after the Commerce Department reported that August inflation was 8.3%. This is a modest decrease from July’s figure of 8.5% and June’s figure of 9.1%.
However, the United States remains embroiled in the worst cost-of-living crisis in forty years, with interest rates likely to be raised by 0.75 percent for the third consecutive month on Wednesday.
As borrowing costs and mortgage rates grow, this will drive many Americans to tighten their belts.
At the opening bell on Tuesday, the major market indexes on Wall Street fell dramatically as the new inflation statistics fueled fears that the Federal Reserve will continue its aggressive pace of rate hikes.
Officials of the Federal Reserve are aware that this decline in demand may aid in combating inflation, but it will certainly cause pain for many sectors as demand for their goods and services declines.
The S&P 500 fell 124 points, or 3%, to 3,987, while the Nasdaq composite fell 476 points, or 3.9%, to 11,791.
After the opening of the stock market, Tesla dropped around 3%, or 11.72 points, while Apple dropped 6.97 points, or 4.25 percent.
Inflation fell to an annual rate of 8.3 percent in August, mostly due to falling gasoline costs.
The latest consumer price index report from the Commerce Department on Tuesday showed a decline from the 40-year high of 9.1 percent recorded in June and 8.5 percent in July, but the latest statistics were hotter than expected, and Wall Street began substantially lower in response.
In August, consumer prices increased 0.1% on a monthly basis, after holding unchanged in July. The Federal Reserve, which is tasked with combating inflation, regularly analyzes these numbers.
The decline in August’s inflation rates was led by a 10.6 percent drop in gasoline costs, while pump prices remained almost 25 percent higher than a year ago.
Food costs continued to soar at an alarming rate, with the cost of groceries increasing by 13.5% from the previous year, the largest yearly increase since February 1979.
Rent has increased by 6.7% over the past year, indicating that housing costs have continued to climb.
Inflation has increased families’ grocery bills, rents, and electricity costs, among many other expenses, causing hardships and spreading economic pessimism despite robust job growth and jobless rates near historic lows.
Biden said in a statement following Tuesday’s inflation report, ‘Today’s numbers demonstrate additional progress in bringing global inflation down in the US economy.’
In a statement, President Biden said, “Today’s results indicate more progress in reducing worldwide inflation in the United States economy.”
The last two months have seen basically unchanged pricing in the United States, which is good news for American families, but there is still work to be done.
Although Americans will welcome the gradual decline in gasoline prices since their June peak, high food and housing costs continue to squeeze family budgets.
Inflation and economic difficulties weigh strongly on the minds of voters, according to polls, and have become a major electoral threat for Democrats in the midterm elections.
Excluding volatile food and energy prices, so-called core inflation increased by 0.6% in August compared to the previous month, and by 6.3% over the last year.
These statistics exceeded the expectations of several economists and suggest that the Fed will likely raise interest rates by 0.75 percentage points at its meeting next week.