Dow Sinks 380 Points as Bets of Aggressive Rate Hike Surged Following January's Red-Hot Inflation

US benchmark stock indexes slumped as January’s hotter-than-expected inflation sent government bond yields soaring, reflecting concern the Federal Reserve will get more aggressive in its efforts to tame price pressures.

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The Nasdaq Composite sank 1.9% to 11,371.1, with the S&P 500 down 1.3% to 3,960.2 and the Dow Jones Industrial Average 1.1% lower at 32,777.4. Real estate, technology, and consumer discretionary led the decliners, with all sectors in the red intraday.


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The US two-year yield surged 13.5 basis points to 4.83%, its highest level since about 2007. The 10-year yield jumped 8.6 basis points to 3.97%, the strongest in about three months.

Personal consumption expenditures rose 1.8% last month after dipping 0.1% in December, the Bureau of Economic Analysis said Friday. The consensus on Econoday was for a 1.2% gain for January.

The annual headline PCE rose to 5.4% last month from 5.3% in December, against expectations for a 4.9% rate. The Fed’s preferred core inflation measure, which excludes food and energy, increased 4.7%, up from 4.6% the prior month and above the Street’s view for a 4.3% gain.

Monthly headline and core measures rose 0.6% each, higher than the 0.4% market estimate.

The report shows that the economy is “running too hot for the Fed,” according to a note from Oxford Economics.

The US dollar appreciated 1.3% intraday against the Japanese yen.

“The inflation readings are still not where we need them to be,” Cleveland Fed President Loretta Mester told Bloomberg News Friday. The report is “just consistent with the fact that the Fed needs to do a little more on our policy rate to make sure that inflation is moving back down,” she added.

The probability the Federal Open Market Committee will lift interest rates by 50 basis points rose to more than 40% on Friday, up from 27% on the previous day and 2.8% a month ago, according to the CME FedWatch Tool. The remaining probability is for an increase of 25 basis points, in line with the Fed’s previous rate hike.

In company news, Autodesk (ADSK) projected first-quarter adjusted earnings per share of $1.50 to $1.56, below the $1.63 consensus from analysts surveyed by Capital IQ. Shares plunged 11% intraday, among the worst performers in the S&P 500 and the Nasdaq.

West Texas Intermediate crude oil rose 1.1% to $76.21 intraday.

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