Dow drops as hot inflation data fuels rate-hike worries

Wall Street’s main indexes fell more than 1% on Friday as a surge in consumer spending and inflation in January sparked concerns that the Federal Reserve will stick to its hawkish stance for longer.

In morning trading, the Dow Jones Industrial Average plunged 419 points, or 1.3%, to 32,735, the Nasdaq slid 2.1% and the S&P 500 was down 1.5%.

The personal consumption expenditures price index, the Fed’s preferred gauge of inflation, shot up 0.6% last month after gaining 0.2% in December.

In the 12 months through January, the PCE index accelerated 5.4% after rising 5.3% in December.

“This PCE number, which to me is a vital number, clearly suggests that the Fed has more to do. Now you’re looking at probably half of 1% rise in March,” said Phil Blancato, chief executive officer at Ladenburg Thalmann Asset Management in New York.

“In other words, what this means is the Fed is not done, further pressure on yields to push higher, the battle against inflation has not yet won, and volatility for the stock market.”

Consumer spending, which accounts for more than two-thirds of US economic activity, jumped 1.8% last month, the Commerce Department said. Economists polled by Reuters had forecast a 1.3% growth.

The three major US indexes are on track for weekly losses despite a modest rebound on Thursday, with the blue-chip Dow set for a fourth consecutive week of declines.

After a strong January, equity markets have retreated this month as a slew of economic data fed into worries that the central bank might have to keep interest rates higher for longer amid signs of sticky inflation and a resilient labor market.

Traders of futures tied to the Fed’s policy rate added to bets that the central bank will raise rates at least three more times this year, with the peak rate seen in the range of 5.25%-5.5% by June.

Megacap stocks including Tesla, Amazon and Nvidia slid in the range of 1.2% and 2.5% as the yield on the benchmark US 10-year Treasury notes rose. 

Separately, January home sales data and the University of Michigan’s final reading of consumer sentiment for February are due later in the day.

Boeing slid 3.8% after the Federal Aviation Administration said the planemaker temporarily halted deliveries of its 787 Dreamliner jets.

Warner Bros Discovery fell 2.3% after reporting a greater-than-expected quarterly loss due to one-off charges related to Warner Bros-Discovery merger.

Block rose 3.4% after the payments firm said it is slowing the pace of hiring this year to control costs and gave an upbeat forecast for a key profit metric.