US stock indexes tumbled on Friday, closing significantly lower following the release of PCE inflation data that surpassed expectations. Investors are concerned about a potential resurgence in consumer prices during the year. February's core PCE increased by 2.8% compared to the previous year.
The stock market saw a sharp decline as investors reacted to the unexpected rise in prices reported in the latest inflation data. The major US indexes opened lower and continued to decrease throughout the morning, with a rapid sell-off occurring around midday. The Dow Jones Industrial Average dropped by more than 600 points and the Nasdaq Composite fell over 2%.
The discouraging inflation report influenced the market performance at the week's end as investors grappled with persistent inflation and uncertainties surrounding President Donald Trump's tariff plans. The core personal consumption expenditures index for February saw a 2.8% year-on-year increase, slightly surpassing the anticipated 2.7%. This favored measure by the Federal Reserve also showed a 0.4% monthly rise, exceeding the estimated 0.3%. The higher-than-expected figures added to investor concerns about a potential acceleration in price hikes, especially amidst predictions of inflationary effects from Trump's trade policies.
Consumer spending in February was below expectations, posting a 0.4% increase instead of the forecasted 0.5%. The data suggests ongoing worries on Wall Street about persistent inflation and slowing economic growth potentially leading to a stagflation scenario. This worst-case economic situation may arise if high inflation levels prevent the Federal Reserve from cutting interest rates to boost economic activity.
The PCE index reflects information prior to the implementation of Trump's tariffs, but experts anticipate that these increased levies could eventually drive up consumer prices. Business executives are reportedly apprehensive about making new investments due to the unpredictable nature of the tariff policy under the current administration, according to Matt Stephani, the president of Cavanal Hill Investment Management.