NEW YORK (AP) — The Dow Jones Industrial Average sank more than 1,250 points Tuesday, its steepest sell-off in more than two years, after a government report showed that inflation is maintaining a surprisingly strong grip on the U.S. economy.
The S&P 500 sank 4.3%, its biggest drop since June 2020. The Dow fell 3.9% and the Nasdaq composite closed 5.2% lower. The sell-off ended a four-day winning streak for the major stock indexes and erased an early rally in European markets.
Bond prices also fell sharply, sending their yields higher, after a report showed inflation decelerated only to 8.3% in August, instead of the 8.1% economists expected.
The hotter-than-expected reading has traders bracing for the Federal Reserve to ultimately raise interest rates even higher than expected to combat inflation, with all the risks for the economy that entails. Fears about higher rates sent prices dropping for everything from gold to cryptocurrencies to crude oil.
“Right now, it’s not the journey that’s a worry so much as the destination,” said Brian Jacobsen, senior investment strategist at Allspring Global Investments. “If the Fed wants to hike and hold, the big question is at what level.”