NEW YORK (AP) — Stock prices on the New York Stock Exchange had an up-and-down day before closing Wednesday lower, following the latest inflation update and the latest warning of a possible recession. .
The S&P 500 Index fell 16.99 units, or 0.4%, to settle at 4,091.95 after swinging between small gains and losses during the day. The Dow Jones Industrial Average lost 38.29 points, or 0.1%, to 33,646.50, and the Nasdaq Composite lost 102.54 points, or 0.9%, to 11,929.34.
For more than a year, Wall Street has focused on the high rate of inflation and how much painful remedy the Federal Reserve will have to apply to contain it. Wednesday’s update on the direction of inflation was mixed, showing consumer prices were 5% higher last month than a year earlier.
That’s still well above what the Fed thinks is right, but there are also concerns about some underlying trends within the data, which weighed on financial markets. On the bright side for investors, however, the headline inflation number was still better than the 5.2% economists had expected. It also marked a continued slowdown from the inflationary peak reached last summer.
Taken together, the data rocked stocks, though the swings weren’t nearly as severe as in the past year. Approximately 65% of the S&P 500 stocks fell.
Traders are still mostly betting that the Federal Reserve will raise short-term interest rates another quarter of a percentage point at its next meeting, according to data from CME Group. Some bets are on the Fed simply holding rates steady in May, something it hasn’t done in more than a year.
“The Fed has many reasons to pause and few reasons not to,” said Brian Jacobsen, investment strategist at Allspring Global Investments.
High rates can reduce inflation, but only by sharply slowing the entire economy. This increases the risk of a recession down the road and hurts the prices of stocks, bonds and other investments in the meantime. The Federal Reserve has already raised rates at a breakneck pace over the last year, enough to hurt some sectors of the economy and strain the banking system.
As a result, many investors and economists expect the economy to experience at least one short, shallow recession later this year. If banks hold back on lending as a result of all the problems in their sector, the economy could come under further pressure.
In minutes from the latest Federal Reserve meeting, released Wednesday afternoon, the central bank said its economists forecast the credit crunch will lead to a “mild recession” beginning later this year. Previously, his staff had forecast modest growth.
In the bond market, yields fell on Wednesday immediately after the inflation report, then pared their losses and fell again after the release of the Federal Reserve minutes. The yield on the 10-year Treasury fell from 3.43% to 3.41%.
Associated Press writers Yuri Kageyama and Matt Ott contributed to this report.
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