The S&P 500 fell 1.4 percent after the Bureau of Labor Statistics reported consumer inflation running hotter than expected. Core CPI rose 0.4 percent month-over-month, above the 0.3 percent consensus estimate compiled by major financial data providers.
The surprise reading complicates the Federal Reserve’s path toward rate cuts and sent Treasury yields higher across the curve. The 2-year yield jumped 12 basis points to 4.62 percent, its highest level in three months.
Technology and growth stocks led the decline, with the Nasdaq dropping 2.1 percent as investors rotated out of rate-sensitive sectors. Defensive sectors including utilities and consumer staples outperformed, with utilities gaining 0.3 percent on the day.
Fed fund futures immediately repriced, pushing the expected timing of the first rate cut back by approximately six weeks. Several Wall Street banks issued revised forecasts suggesting any easing may be delayed until Q4.
Economists highlighted that shelter costs and services inflation remained the primary drivers of the upside surprise, suggesting structural price pressures that may take longer than anticipated to resolve.