Hot US Inflation Sparks Rate Hike Fears as Stock Indices Plummet

On December 14, the three major stock indices on the New York Stock Exchange all closed lower, with the S&P 500 falling 1.6%, the Nasdaq 100 dropping over 1.8%, and the Dow Jones Industrial Average slipping 1.4%. The market decline was primarily driven by the latest U.S. Consumer Price Index (CPI) data, which came in higher than market expectations, indicating that inflationary pressures have not yet eased and leaving investors concerned that the Federal Reserve (Fed) may further raise interest rates in the future.

The CPI figures released this week showed that overall prices rose 3.7% in December, exceeding the market forecast of 3.4%. Core CPI, which excludes food and energy, rose to 3.2%, slightly above the expected 3.1%. Although the pace of price growth slowed slightly from the previous month, it remains well above the Fed's target level of 2%, demonstrating that price pressures persist. These figures served as a fresh reminder to the market that inflation has not fully receded and that the Fed's monetary policy may need to be tightened further.

The Federal Reserve has raised interest rates multiple times consecutively since late 2022, pushing the target range for the federal funds rate to 5.25% to 5.50%, the highest level since the 2008 financial crisis. In the minutes of its latest policy meeting, the Fed noted that while it has adopted a "restrictive" monetary policy, it still needs to observe inflation trends and labor market resilience, and stated that if inflation remains high, further rate hikes remain possible. Investors interpreted this as a signal that the Fed may implement one or two additional rate hikes within the next two quarters.

The stock market reacted sensitively to this, with technology stocks taking a severe hit amid expectations of rising interest rates.