May's consumer-price index report reverberates across financial markets on Monday as investors begin to consider the prospects of accelerating U.S. inflation.
Financial markets convulsed on Monday as investors considered the prospects of U.S. inflation accelerating, not decelerating, after the release of May’s consumer-price index report.
Signs of the sentiment shift since Friday’s data release were evident in the fast-paced tightening of financial conditions, plus an outlook for more aggressive Federal Reserve rate hikes. The sharp selloff in stocks also continued, with the Dow industrials’ dropping as much as 900 points at one point on Monday and the S&P 500 trading in bear-market territory. Though the jury is out on whether the U.S. can avert an economic downturn, some see a recession likely arriving sooner than many expect.
May’s CPI report, which showed the annual U.S. inflation rate rising to 8.6% from 8.3% in April, has turned into a multi-day trading event ahead of this week’s meeting of Fed officials, who have delivered just two rate hikes in this tightening cycle with a third likely on the way Wednesday. As of Monday, traders of fed funds futures were pricing in a 29% chance of a jumbo-size 75 basis point hike in two days, up from 3.1% a week ago, according to the CME FedWatch Tool.
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