Wall St slips as rate-cut bets waver on hot producer inflation data
A Labor Department report showed producer prices increased by the most in three years in July due to a surge in the costs of goods and services, suggesting a broad pickup in inflation was imminent.
Traders trimmed their Fed rate-cut expectations for the rest of the year to about 56.7 basis points, according to data compiled by LSEG, compared with around 63 bps before the report.
But they are still fully pricing in a quarter-percentage-point cut in September.
'The implication is that the Fed is going to offer a 25-bit cut in September. But it will be a hawkish cut. It's way too early still for the Fed to wish to guide the market towards an extended easing cycle,' said Thierry Wizman, global FX and rates strategist at Macquarie Group.
'The next important thing will be the Expenditures Price Index later this month. If there are signals that there's inflation broadly in services, the market will take that adversely.'
A separate report on Thursday showed the number of Americans filing new applications for jobless benefits fell last week.
At 11:55 a.m. ET, the Dow Jones Industrial Average fell 163.83 points, or 0.36%, to 44,758.44, the S&P 500 lost 9.96 points, or 0.16%, to 6,456.62 and the Nasdaq Composite lost 26.59 points, or 0.12%, to 21,686.56.
Recent data reflecting labor market weakness and a moderate rise in consumer prices had strengthened expectations that the central bank will potentially lower interest rates next month.
However, Thursday's report fanned concerns that US tariffs on imports could start to impact prices in the coming months and dampen a rally in US stocks that had helped the benchmark S&P 500 and tech-heavy Nasdaq log record highs over the past two sessions.
On Thursday, eight of the 11 S&P 500 sectors declined, with materials falling the most, down 1.3%. Rate-sensitive small-caps and housing stocks also dropped more than 1% each.
St.Louis Fed President Alberto Musalem, a voting member on the Federal Open Market Committee this year, said a half-point rate cut at the Fed's September meeting is not warranted, a day after Treasury Secretary Scott Bessent said it was possible.
Cisco Systems lost 1.4% after the network equipment manufacturer's broadly in-line forecast did little to encourage investors.
Declining issues outnumbered advancers by a 3.86-to-1 ratio on the NYSE and by a 3.14-to-1 ratio on the Nasdaq. The S&P 500 posted 12 new 52-week highs and one new low while the Nasdaq Composite recorded 57 new highs and 55 new lows.
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