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El-Erian says the Fed has to move aggressively to beat inflation
Dow falls 800 points after inflation hits 40-year high, consumer sentiment plummets
Dow Plunges 750 Points After ‘Very Troubling’ Inflation Report Fuels Fears Of Impending Recession
YESTERDAY
The Dow falls nearly 800 points as inflation hits 40-year high
By Nicole Goodkind, CNN Business
Markets are poised for yet another week of losses after steep drops on Friday. The Dow dropped nearly 800 points on Friday afternoon after a key inflation report missed estimates and showed a higher-than-anticipated increase in the price of consumer goods.
The May consumer price index rose 8.6% year-over-year, its highest level since 1981. Economists had forecast an 8.3% increase. The core index, which excludes FOOD and Energy Prices rose by 6%, slightly higher than estimates of 5.9%. . .
"The major risk to consumption, employment, and the economy overall, isn't an organic growth slowdown, but the extent to which extreme energy and food price increases could cause central banks to push against the string, and [the economy could] essentially fall into a damaging policy mistake," wrote Rick Rieder, chief investment officer of Global Fixed Income at BlackRock in a note. . .
"The probability of a recession in the next year or so is rising," said Sung Won Sohn. professor of Finance & Economics at Loyola Marymount University and chief economist of SS Economics. "Inflation is eating away at consumers' purchasing power."
Consumer spending accounts for about 70% of the US economy, and a real decrease in that spending would be a huge blow to gross domestic product. "The [Federal Reserve] now recognizes that it is way behind the curve on inflation and must act more decisively," said Sohn.
The two-year Treasury yield grew to 3% on Friday, its highest level since 2008. The S&P 500 and NASDAQ indexes were both down around 3%."
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