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Stocks dive to another losing week as inflation worsens

NEW YORK (AP) – Wall Street’s shuddering realisation that inflation got worse last month, not better as hoped, sent markets reeling on Friday.

The S&P 500 sank 2.9 per cent to lock in its ninth losing week in the last 10, and tumbling bond prices sent Treasury yields to their highest levels in years. The Dow Jones Industrial Average lost 2.7 per cent, and the Nasdaq composite dropped 3.5 per cent.

Wall Street came into Friday hoping a highly anticipated report would show the worst inflation in generations slowed a touch last month and passed its peak.

Instead, the United States (US) government said inflation accelerated to 8.6 per cent in May from 8.3 per cent a month before.

The Federal Reserve has already begun raising interest rates and making other moves to slow the economy, in hopes of forcing down inflation. Wall Street took Friday’s reading to mean the Fed’s foot will remain firmly on the brake for the economy, dashing hopes that it may ease up later this year.

“Inflation is hot, hot, hot,” said senior investment strategist at Allspring Global Investments Brian Jacobsen. “Basically, everything was up.”

The growing expectation is for the Fed to raise its key short-term interest rate by half a percentage point at each of its next three meetings, beginning next week. That third one in September had been up for debate among investors in recent weeks. Only once since 2000 has the Fed raised rates by that much, last month.

“No relief is in sight, but a lot can change between now and September,” Jacobsen said. “Nobody knows what the Fed will do in a few months including the Fed.”

The nation’s high inflation, plus the expectations for an aggressive Fed, have sent the two-year Treasury yield to its highest level since 2008 and the S&P 500 down 18.7 per cent from its record set in early January.

The worst pain has hit high-growth technology stocks, cryptocurrencies and other particularly big winners of the pandemic’s earlier days. But the damage is broadening out as retailers and others are warning about upcoming profits.

Traders work on the floor at New York Stock Exchange. PHOTO: AP