Stocks slide as investors worry about more rate hikes

New YorkCNN — 

Inflation doesn’t seem to be going away anytime soon. And that’s weighing on Wall Street.

Stocks tumbled Thursday after the US government’s Producer Price Index report showed that prices at the wholesale level rose faster than expected in January.

The Dow fell more than 430 points, or 1.3%. The S&P 500 was down 1.4% and the Nasdaq slid 1.8%. Stocks finished near their lows of the day.

The unwelcome inflation news comes just two days after the Consumer Price Index figures showed that retail prices continue to come in above forecasts.

Strong retail sales numbers Wednesday and another decline in the number of people filing for weekly jobless claims Thursday added to concerns that the economy remains hotter than the Fed would like.

The majority of the data suggest the economy is mostly stronger than what Wall Street was expecting. Manufacturing and housing are still in a recession, but the rest of the economy isn’t looking too bad,” said Edward Moya, senior market analyst for the Americas at OANDA, in a report.

Investors also were unnerved by comments from Cleveland Federal Reserve president Loretta Mester about inflation and the economy.

Mester, who does not currently have a vote on the central bank’s interest-rate setting Federal Open Market Committee, said she would have preferred that the Fed had raised rates by a half-point instead of a quarter-point at its last meeting.

“The upside risks to inflation and historical experience suggest to me that the costs of undershooting on policy or prematurely loosening policy still outweigh the costs of overshooting,” she said in a speech.

In other words, Mester believes the Fed would be better off remaining aggressive to ensure that inflation pressures don’t pick up again. The Fed can always pause, or even start cutting rates, once inflation is no longer a concern.

“If inflation begins to move down faster than anticipated, we can react appropriately,” Mester said.

Still, investors are growing increasingly worried that the Fed’s aggressive rate hiking may cause a more severe slowdown, or even a recession.

“The Fed will read January’s inflation data as affirming their view that inflation will stay stubbornly high this year,” said Bill Adams, chief economist for Comerica Bank, in a report. “Barring some big downside surprise, the Fed’s most likely path forward is to make three more quarter percentage point rate hikes in 2023.”

“High interest rates will be a headwind to housing and other interest rate sensitive industries in 2023 and 2024 and keep economic growth below the economy’s trend,” Adams added.

Traders were listening closely to comments from two other Fed members Thursday.

St. Louis Fed president James Bullard, another regional bank president who does not have a vote on the FOMC this year, also spoke about the economy and interest rates Thursday. Bullard, like Mester, has tended to be more hawkish, meaning he is typically more concerned about inflation and inclined to raise rates.

Along those lines, Bullard said “continued policy rate increases can help lock in a disinflationary trend during 2023, even with ongoing growth and strong labor markets, by keeping inflation expectations low.”

In comments after the speech, Bullard said that he also advocated for a half-point hike at the Fed’s meeting earlier this month and didn’t rule out advocating for a similarly sized increase at the Fed’s next meeting in March.

Fed governor Lisa Cook, a FOMC voting member, will be giving a speech after the market closes.

Investors also were digesting the latest batch of corporate earnings, which were mixed. Shares of Dow component Cisco (CSCO) rallied after the networking equipment giant posted solid results. Streaming media device maker Roku (ROKU) also soared following strong earnings.

But shares of media giant Paramount Global and e-commerce platform Shopify (SHOP) both fell after the two companies underwhelmed investors with their latest earnings and outlooks.

Tesla’s stock also fell 6% following the news of a recall of nearly 363,000 vehicles with its so-called “Full Self Driving” driver assist feature.