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Dow falls more than 500 points on worse-than-expected inflation

Investors on Wall Street ran for cover on Tuesday following the release of the federal government’s higher-than-expected inflation report.

The Dow Jones Industrial Average fell by 500 points at the start of trading at the New York Stock Exchange while the tech-heavy Nasdaq index dropped by more than 350 points, or 2.9%.

The S&P 500 dipped by more than 2%.

The markets reacted on Tuesday to the latest consumer price index report which showed that most items became more expensive.

While the cost of gasoline fell, most other goods saw their prices rise yet again.

Consumer prices surged 8.3% in August compared with a year earlier — down from 8.5% in July but still higher than anticipated.

The CPI’s food index rose 11.4%, the largest year-over-year increase since May 1979.

In the past month alone, food prices jumped 0.8%.

Housing, medical care, new cars, and home furnishings were also more expensive.

In June, inflation reached a four-decade high of 9.1%.

In the 12 months ending in August, core prices jumped 6.3%, up from 5.9% in July. Rents, medical care services and new cars all grew more expensive in August.

The inflation report dashed investor hopes that the Fed would not need to institute aggressive interest rate hikes.
The inflation report dashed investor hopes that the Fed would not need to institute aggressive interest rate hikes.
Xinhua News Agency via Getty Ima

The latest inflation figures make it more likely that the Federal Reserve will continue to hike interest rates aggressively — much to the dismay of investors on Wall Street.

The high inflation dashed hopes that the Fed could engineer a so-called “soft landing” — hiking interest rates without tipping the economy deeper into recession.

“Inflation is the problem, but the key lies with the labor market,” Chris Zaccarelli, chief investment officer at Charlotte-based Independent Advisor Alliance, told The Post.

“As long as unemployment is extremely low and consumers are confident in their spending, it’s hard to imagine a scenario where the inflation problem resolves itself.”

Zaccarelli doesn’t envy Fed Chair Jerome Powell, who will have to make unpopular decisions that will likely result in a large number of Americans losing their jobs in order to get prices under control.

“The Fed has the worst problem in the world — it’s a political problem, not an economic problem — and the only cure for the current crisis is one that is politically infeasible,” Zaccarelli told The Post.

“If the Fed thought they were criticized too much by the previous administration (and they were), wait until they see the type of criticism they will be under as they deliberately create an economic scenario where unemployment jumps significantly.”

He added: “Not only are they going to end up causing a recession, but it is going to be a bad one.”

With Post wires

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