CPI inflation continued to slow in September, but less than expected. Core consumer prices, which exclude food and energy, rose at the fastest annual rate since 1982. Stocks opened sharply lower after the CPI inflation report, but the Dow turned positive late in the morning. Treasury yields jumped above 4% as the data boosted expectations for a Fed rate hike, but then slid back.

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September CPI inflation came in at 8.2%, down from 8.3% in August and a 40-year high in June at 9.1%. The CPI rose 0.4% compared to August. Economists expected a monthly gain of 0.2% with the headline inflation rate dropping to 8.1%.

There is little evidence of lower core inflation pressures.

Core CPI inflation rose 6.6%, up from 6.3% in August. That exceeds the 39-year peak in March of 6.5%. Core prices are up 0.6% compared to August. Wall Street expected a monthly rise of 0.4% and core inflation of 6.5%.

Prices for non-energy services jumped 6.7% from the previous year, the highest in decades.

This category of spending, which includes rent, medical services, transportation, and education, is associated with a narrow labor market and high wage growth. So the Fed wants to see service prices – and labor markets – cool off before pulling back from the Fed’s rate hike.

Initial jobless claims increased by 9,000 to 228,000 in the week ended October 8. Wall Street expected a slight rise in unemployment claims to 225,000.

Fed rate hike expectations

After the CPI inflation report, it is now certain that the Federal Reserve will raise interest rates by 75 basis points for the fourth consecutive meeting in November. This is according to CME FedWatch Tool.

Markets are now expecting 75 basis points in December, which will bring the year-end fed funds range to 4.25%-4.5%.

Expectations of a Fed rate hike jumped after CPI higher than expected in August Report on September 13.

On Wednesday, the producer price index for September rose 0.4% versus August, double expectations. Wholesale inflation came in at 8.5%, down slightly from August’s 8.7% but slightly above expectations of 8.4%. Core PPI rose 0.3%, in line with the consensus. Core PPI inflation eased to 7.2% from 8.1% in August.

Fed meeting minutes

On Wednesday, the central bank released minutes from the Federal Reserve’s September 20-21 meeting. Many officials. According to the Federal Reserve’s meeting minutes, he said that “the cost of taking too little action to bring down inflation is likely to outweigh the cost of taking too much.” Many participants wanted to “calibrate” the future tightening to economic conditions.

However, the Fed is looking for clear and convincing evidence that inflation is easing significantly before slowing the pace of rate hikes.

Dow Jones chases the lower Nasdaq

The Dow Jones Industrial Average was down 500 points at the start of the bell, falling below its September 30th low. The S&P 500 and Nasdaq Composite sold more, and also reached bear market lows.

But the major indexes rebounded, with the Dow rising 1.9%. The S&P 500 jumped 1.4% while the Nasdaq Composite rose 0.8%.

Major indices were also sold off heavily after the August inflation report on September 13th. Heading into this report, stocks rebounded on hopes of a weak inflation reading and the “Fed Pivot” for slower rate hikes. This has been the trend in the Fed’s monetary reports for the past few months, but not this time.

The main indexes fell slightly on Wednesday. The Dow was just above the two-year bear market low set on September 30th. The S&P 500 and Nasdaq hit new lows in the bear market this week.

The 10-year Treasury yield jumped 7 basis points to 3.97%, but that’s a long way from the 13-year peak of 4.06% on the day. The 10-year yield has risen for 10 consecutive weeks.

The US dollar initially gained strength, but then reversed lower.

In a pre-market move, Dow futures rose ahead of the CPI report, while Treasury yields fell, on reports that the new British government was planning to scrap much of its budget plan, including tax cuts. This deficit-financed plan had criticized the British pound and sent yields higher, prompting the Bank of England to announce emergency bond purchases. The Bank of England says these bond purchases will come to an end.

While the UK faces its own problems, it comes amid a backdrop of Federal Reserve strength that has pushed the US dollar higher, putting pressure on markets around the world.

Please follow Ed Carson on Twitter at Tweet embed For stock market updates and more.

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