Stocks sink on inflation fears

Well, Wall Street has something to worry about again.

The Dow opened 100 points lower after the Labor Department reported consumer prices rose 2.1% over the past year. Inflation rose more than economists had predicted.

Inflation concerns investors because it could lead the Federal Reserve to hike interest rates more quickly than planned. That would slow down the economy, make the cost of borrowing higher and dent corporate profits. The Fed, which targets 2% inflation, has signaled it will raise rates three times this year for the second year in a row.

“Investors were looking for some hard results on inflationary data and that’s what we got today,” said Charlie Ripley, senior investment strategist for Allianz Investment Management.

Low inflation and rock-bottom interest rates had helped fuel soaring stock prices since 2009.

Fear about inflation initially drove the market sell-off that began February 2, when the Labor Department reported employees’ paychecks grew faster than they had in nine years. The Dow fell by 1,000 -points twice last week.

The recent tax cuts have “complicated” the Fed’s strategy by juicing a growing economy, said PNC Chief Economist Gus Faucher.

Uncertainty over additional interest rates showed up in the bond market Wednesday. The yield on the 10-year Treasury immediately climbed following consumer price data from 2.83% to a four-year high of 2.88%. Prices and yields move in opposite directions and if bond yields start to rise, investors may want to take some of their money out of stocks and put it into safer bonds.

“If we continue to see hard evidence of inflation, 3% [yields are] not out of the cards pretty soon here,” said Ripley.

Stocks had rallied over the last three trading days, adding nearly 800 points.

Inflation rose faster than expected in January
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