By: Andrew B. Noto

Today started with news that the August consumer price index (CPI) report came in higher than expected and ended with aggressive selling in most major equity markets. When the trading day concluded, all thirty companies in the Dow Jones Industrial Average finished the day in negative territory with the index falling 1,276 points, or 3.94%. The other popular equity indices, the S&P 500 and the NASDAQ, fell 4.32% and 5.16% respectively. This is after all three indices snapped a three-week losing streak with gains across the board last week.

Like mentioned above, the catalyst for today’s move lower was the August CPI report which revealed that inflation rose 0.1% month over month despite a 10.6% decline in gas prices. When you remove food and gas prices, inflation rose 0.6% month over month. This may seem like benign news but when you consider that inflation rose 8.3% year over year, it is affecting the consumer’s pocketbook considerably. There were hopes that the Federal Open Market Committee’s (FOMC) recent tightening would have helped slow down inflation further, but today’s news revealed that is not the case.

Two weeks ago in our August market recap we discussed two important dates to keep in mind, the release of the August CPI data on September 13th (today) and the next FOMC meeting on September 21st. With today’s news it seems very likely that the Fed will increase the Federal Funds Target Rate by 0.75% again, but today’s data may force them to act more aggressively. Fed Chair Jerome Powell said last week “The Fed has and accepts responsibility for price stability. My colleagues and I are strongly committed to this project, and we will keep at it until the job is done.” So back to work they go next week as they continue to try to moderate inflation.

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