New York Stock Exchange Falls on Higher-than-Expected January CPI

Korea Economic Daily

Summary

It was reported that the rise in the January Consumer Price Index (CPI) led to a drop in stocks on the New York Stock Exchange and a sharp rise in Treasury yields.
The Dollar Index rose 0.3%, and the 10-year Treasury yield surged to 4.649%.
It was reported that the Federal Reserve Board's rate cut this year is expected to be limited to just one 0.25% point cut.

Dollar Index Rises 0.3% and Treasury Yield Soars to 4.649%

Interest Rate Swap Market Expects Only One 25bp Rate Cut This Year

As the January Consumer Price Index (CPI) rose more than expected, inflation concerns reignited, leading to a drop in stocks on the New York Stock Exchange and a sharp rise in bond yields.

The three major indices, which fell nearly 1% in early trading on the New York Stock Exchange, narrowed their losses as time passed. As of 9:55 AM Eastern Standard Time, the Dow Jones Industrial Average fell 0.7%. The S&P 500 dropped 0.5%, and the Nasdaq Composite fell 0.4%.

Following the consumer price announcement, the 10-year Treasury yield, a benchmark for mortgage rates and other loan rates, surpassed 4.6%. At 9:50 AM Eastern Standard Time, it surged 11 basis points (1bp=0.01%) to 4.649%. The Bloomberg Dollar Spot Index rose 0.3%.

The January CPI rose 0.5% over the month, bringing annual inflation to 3%. This is the highest level since March last year, significantly exceeding economists' estimates of a 0.3% rise and an annual 2.8%. The core CPI, excluding food and energy prices, rose 0.4%, climbing 3.3% over the past 12 months, also higher than expected.

Samir Samana, head of global equities and real assets at Wells Fargo Investment Institute, noted, "Normalizing inflation could be a more challenging trajectory than the past two years." There is concern that if the Trump tariffs take full effect, price pressures will manifest across the board.

Federal Reserve Board Chairman Jerome Powell will speak at the House Financial Services Committee today, following his testimony in the Senate the previous day. Powell stated the previous day that he would not rush to cut rates.

President Trump said this morning before the CPI data was released that rates should be cut.

Meanwhile, traders in the interest rate swap market expect the Federal Reserve to cut rates by only 0.25 percentage points once this year. Before the CPI report, two rate cuts were anticipated.

Guest reporter Kim Jung-ah kja@hankyung.com