NEW YORK, United States — Stock markets fell Friday, with Wall Street indexes retreating from record highs. This happened as a key US inflation reading accelerated, lowering the possibility of sustained interest rate cuts in the coming months.
Investors widely expect a cut next month to bolster the world’s largest economy. This was after Federal Reserve chief Jerome Powell signaled last week the risks of labor market weakness.
But the personal consumption expenditures (PCE) price index held steady at 2.6 percent in July, above the Fed’s two-percent target. The core reading that strips out food and energy accelerated slightly to 2.9 percent.
READ: Interest rate cut failed to boost PSEi
“The bad news is, inflation is continuing to inch higher, which isn’t really the environment the Fed likely wants to cut in,” said Bret Kenwell, an analyst at eToro.
Although a September cut of 25 basis points is probably still on the cards, “it may be hard for them to move as quickly or aggressively as they’d like, with inflation moving higher,” he said.
The main US indexes fell ahead of the long Labor Day weekend after the Dow and S&P 500 closed at all-time highs on Thursday.
Wall Street will be closed Monday for the holiday.
Unemployment, inflation rose in Germany
In Europe, German data showed that unemployment in Europe’s biggest economy topped three million in August for the first time in more than a decade.
Battered by high energy costs and fierce Chinese competition, German manufacturers were struggling even before US President Donald Trump erected new tariff walls.
Separate figures showed that German inflation rose in August for the first time this year, putting it at 2.2 percent. This could lessen the chances for further European Central Bank rate cuts.
READ: After busy first 100 days, Germany’s Merz faces discord at home
“As far as the European Central Bank is concerned, today’s German inflation data will catch the hawks’ attention, as it bolsters the argument for a high bar to yet another ECB rate cut,” said Carsten Brzeski, an economist at ING.
Inflation slowed in France and Italy this month, however, and held steady in Spain.
In Britain, an influential think tank said Friday that the Labour government could raise billions of pounds by imposing a windfall tax on banks in the UK.
NatWest fell significantly on London’s top-tier FTSE 100 index, closing down 4.4 percent, and Lloyds and Barclays also saw heavy selling.
The report by the Institute for Public Policy Research suggested that banks could be targeted in the Labour government’s autumn budget.
Your subscription could not be saved. Please try again.
Your subscription has been successful.
“Any such rumors are likely to have an exaggerated impact given the government’s obvious need to raise more income in an attempt to mitigate its financial difficulties,” said Richard Hunter, head of markets at Interactive Investor.
