Live updates: Stocks sink as inflation remains red hot | CNN Business (2024)

When it comes to recession indicators, nothing it quite as good as a US Treasury 2-year/10-year yield curve inversion. Since 1978, every time the 2/10 curve has inverted, recession has followed.

That’s not good news for the US economy. The 10-year reached highs of 3.04% today following the red-hot June inflation report and 2-year yields rose by 3.17%. deepening the current inversion to its widest spread in 22 years.

“Back to year 2000,” Liz Ann Sonders, chief investment strategist at Charles Schwab, wrote today. A recession is now inevitable, she added.

Bank of America economists also said they expect the US to enter a “mild” recession this year.

The yield curve inverts when short-term Treasury bond investments pay out more than long-term investments.

But that doesn’t necessarily mean a recession is right around the corner: The shortest inversion-to-recession period was 158 days, before the 2020 recession. The longest was 1,010 days, ahead of the 2001 recession, according to analysis by Jack Hersch at S&P Global Market Intelligence.

A trader works on the floor of theNewYorkStockExchangeinNewYorkCity on July 13.

US stocks closed lower on Wednesday after a key inflation metric showed that prices increased over the year ended in June at the highest rate since 1981.

Investors fear that news, combined with still-strong employment numbers, will bolster the Federal Reserve’s hawkish attempts to lower inflation by tightening monetary policy.

While most financial institutions still predict a rate hike of 75 basis points, the market is currently pricing in a 81% probability that the central bank will increase interest rates by 1% later this month. That would be the largest hike in the modern era.

Bank of America analysts predicted a “mild” recession is coming to the US.

Raphael Bostic, president and chief executive officer of the Federal Reserve Bank of Atlanta, during the National Association of Business Economics (NABE) economic policy conference in Washington, D.C, on March 21.

Atlanta Federal Reserve President Raphael Bostic signaled on Wednesday that the US central bank may need to take even more drastic steps to get inflation under control.

Following the worse-than-feared June inflation report, Bostic said high prices could require officials to consider raising interest rates by a full percentage point at the meeting later this month.

“Everything is in play,” Bostic told reporters, according to comments reported by Reuters and confirmed to CNN by an Atlanta Fed spokesperson.

The Fed raised interest rates last month by three-quarters of a percentage point, the biggest hike since 1994.

Markets were somewhat cheered by Bostic’s statement. The Dow was down only 75 points after tumbling about 400 points at the open. The S&P 500 was slightly higher, and the Nasdaq rose 0.4%.

A customer pumps gas at an Exxon Mobil gas station on June 9 in Houston, Texas.

White House economist Jared Bernstein believes falling energy prices will help tame inflation.

In an interview with CNN, Bernstein emphasized that Wednesday’s inflation report, which showed prices spiked by the most since 1981, does not capture the cooling off of energy prices in recent weeks.

“Today’s report does not reflect the full impact of nearly a month of decreases in gas prices,” Bernstein said, noting that the national average for regular gasoline is down by nearly 40 cents a gallon. “Those savings at the pump do not reverse the experience American households are facing, but they sure give people a little bit of breathing room.”

The Biden official also called out lawmakers for failing to act on the president’s agenda, including passing a bill to fund US manufacturing of computer chips.

“It seems unconscionable not to pass a bill that would increase domestic production of microprocessors, especially because it’s something that everyone agrees on,” Bernstein said. “This is the time for Congress to get out of the cart and push, not point fingers.”

US President Joe Biden and Chairman of the Federal Reserve Jerome Powell during a meeting in the Oval Office of the White House in May.

President Joe Biden remains confident in the Federal Reserve’s ability to get inflation under control even as the cost of living continues to spike, according to White House economist Jared Bernstein.

“The president obviously had great faith in members of the Fed board that he renominated and those added. Our faith in that team remains as strong as ever,” Bernstein told CNN in a phone interview.

In November, Biden renominated Jerome Powell to serve as chairman of the Fed. Powell was originally nominated in 2017 by former President Donald Trump.

Asked if he wishes the Powell-led Fed moved faster to address inflation, Bernstein punted.

“There is a lot of chin-stroking punditry… I’m not going there,” he said.

Bernstein noted that the No. 1 point in Biden’s inflation-fighting agenda is respecting the independence of the Federal Reserve.

“History is littered with presidents interfering with Fed rate hike cycles,” he said, hinting at the infamous Fed-bashing by Trump. “This president has committed to stay out of that knitting.”

Food prices arestill on the rise. In the 12-months ending in June, overall food prices rose 10.4%, the biggest annual increase since February 1981, according to data released Wednesday by the Bureau of Labor Statistics.

Grocery prices jumped 12.2% in the year ending in June, not adjusted for seasonal swings. In that period, nearly every individual item got more expensive, with some categoriesseeing dramatic increases. Eggs spiked 33.1%, flour jumped 19.2% and chicken went up 18.6%. Milk got 16.4% more expensive, and fruits and vegetables were 8.1% pricier.

Restaurant menuprices grew 7.7% in that time period.

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Bank of America is calling for a “mild” recession, not a more dramatic collapse like the Great Recession that began in late 2007.

Real GDP is expected to decline this year by 1.4%, before rebounding by 1% next year, Bank of America said.

The unemployment rate is projected to jump from the historically-low level of 3.6% today to 4.6%. However, that would be well below the April 2020 peak of nearly 15%.

By the end of next year, Bank of America expects the Federal Reserve to reverse course and begin cutting interest rates following a string of aggressive rate hikes aimed at taming inflation.

Other economists are more optimistic.

Goldman Sachs said this week the risk of a recession over the next year stands at just 30%, although it rises to nearly 50/50 odds over the next two years. The Wall Street bank said that despite market fears of an imminent recession, “We are doubtful that the economy is already in a recession.”

The American economy is slowing more rapidly than feared because of high inflation. A recession is likely later this year, Bank of America warned on Wednesday.

This marks the first time Bank of America is outright forecasting a downturn since the pandemic erupted in early 2020. A growing number of major banks are predicting a recession this year or next, although others argue the US economy can still experience a “soft landing.”

“Momentum in the domestic economy clearly appears to be slowing. The inflation tax is taking out the ability of households to spend on discretionary items at a fast clip,” Bank of America economist Michael Gapen told CNN in a phone interview.

The Bank of America recession call was made prior to Wednesday’s worse-than-feared inflation report. Gapen said the consumer price index, which spiked by the most since November 1981, gives him a “little more” confidence that a recession will happen because it shows how broad the inflation problem is.

“You can’t say this is just an energy story,” he said.

Traders work on the floor of the New York Stock Exchange during morning trading on July 13 in New York City.

US stocks took a hit this morning after a key inflation reading showed that prices continued to surge in June.

The data added to investors’ fears that the Federal Reserve will get more aggressive in its fight to tame inflation.

The market is currently pricing in a 44% probability that the Federal Reserve will increase interest rates by 1% later this month. That would be the highest hike in modern history.

Still, stocks bounced back as they approached midday:

US Treasury yields jumped following the release of Wednesday’s hotter-than-expected inflation report.

Yields move in the opposite direction to prices, and today’s pop comes as investors fear rising inflation will further hurt consumer growth – and that the Federal Reserve will pursue more aggressive rate hikes, which could slow the economy.

Overall, there’s “not a like to like,” they said.

The market is currently pricing in a 57% probability of a 1% Fed hike later this month.

A shopper walks through a grocery store in Washington, DC, on June 14.

1. Inflation isn’t going away anytime soon

2. Inflation is hot across the board

3. Gas is falling, but that may not help

4. The Fed is probably going to hike rates into a recession

US stocks slid on Wednesday morning after June inflation data came in hot with the year-over-year increase of 9.1% in the Consumer Price Index, the highest annual rise since November 1981.

“This was an eye-popping number. There’s no sugar-coating 9% inflation,” said Brian Jacobsen, senior investment strategist for Allspring Global Investments.

Investors are worried that the new data could incentivize the Federal Reserve to hike interest rates more than expected during their meeting later this month.

“Inflation is becoming entrenched and this is exactly what investors and central bankers worry about the most,” said Jeffrey Roach, chief economist at LPL Financial. “The Fed will likely hike rates by 75 basis points later this month, especially since the job market is strong enough to support the front-loading of rate hikes.”

The Dow lost 210 points, or 0.7%, on Wednesday.

The S&P 500 dropped by 0.9%.

The Nasdaq Composite fell 1.2%.

Delta Air Lines earned its biggest profit since the start of the pandemic in its latest quarter, but higher fuel costs, labor issues and service problems caused it to earn far less than investors expected.

The company reported Wednesday that it earned $735 million in the second quarter. Analysts surveyed by Refinitiv had expected earnings of $1.1 billion for the company.

Average fuel costs for Delta rose to $3.82 a gallon, up 37% from the first quarter and up 82% from the final quarter of 2021. Delta had previously told investors it expected to pay between $3.20 and $3.35 in the second quarter. It now expects to pay slightly less in the third quarter, with fuel costing between $3.45 and $3.60 a gallon.

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Worried about today’s inflation report? Well, here’s a dose of Zen for you…

Concerns about whether the global economy could tip into a recession have dimmed expectations for fuel demand, helping relieve pressure on gasoline prices in the United States this month. The average price for a gallon of regular gas on Wednesday was $4.63, compared to $4.78 a week ago and $5.01 one month ago.

That wasn’t reflected in the June data, given that gasoline prices were at a record high when the Bureau of Labor Statistics crunched the CPI numbers. But it does mean July will probably look better — and markets like to look ahead.

And asurvey from the Federal Reserve Bank of New Yorkpublished this week showed that while consumer inflation expectations for the next year marked a new high in June, expectations for the medium and long term declined.

This indicates that American consumers still have faith that the Fed can get the inflation situation under control by hiking interest rates and ending crisis-era bond purchases. The economy might slow, but price stability will ultimately be restored, as will the much-maligned credibility of central banks.

The exterior of the Marriner S. EcclesFederalReserveBoardBuildingis seen in Washington, D.C., on June 14.

You can bet the Federal Reserve is watching today’s inflation report very, very closely.

The stock market expects the Fed to raise its benchmark interest rate by another three-quarters of a percentage point at the conclusion of its policy meeting on July 27. More than 58% of investors expect the Fed to hike rates by the same amount as it hiked in June, according to CME’s FedWatch tool.

But after today’s higher-than-expected inflation report, a growing number of investors think the Fed may raise rates by even more: a full percentage point. Nearly 42% of investors believe that the Fed will hike rates by that amount.

The Federal Reserve pays particular attention to core inflation data when assessing future inflationary trends, and the latest numbers likely give the central bank a green lightto continue with its aggressive series of rate hikes to cool off the economy and bring down higher prices.

People walk past the New York Stock Exchange on Wall Street on July 12.

US stock futures tumbled after a key inflation reading showed prices continued to surge in June.

Drivers pump gasoline into vehicles at a station outside a Costco Wholesale Corp. store on June 14 in Hawthorne, California.

Inflation surged in June, with US consumer prices jumping by 9.1% year-over-year, according to fresh data released Wednesday by the Bureau of Labor Statistics.

That’s up from the previous reading, when prices rose by 8.6% for the year ended in May; and much higher than the 8.8% that economists had predicted, according to Refinitiv.

The Consumer Price Index for June also showed that overall prices that consumers pay for a variety of goods and services rose by 1.3% from May to June.

Much of the June increase was driven by a jump in gasoline prices. Americans faced record-high gas prices last month, with the national average topping $5 a gallon across the country.