Investors fear that stronger economic trends will lead the Fed to raise interest rates more and push the economy into recession.
“While this is good news for the growth outlook, it is not so great for the Fed to curb demand and tame inflation,” BMO Capital Markets economist Priscilla Thiagamoorthy told Reuters.
The market remains uncertain about the Fed’s policy path ahead of the central bank’s key final policy meeting on December 13 and 14. The next inflation update is also expected next Tuesday, when the Bureau of Labor Statistics releases its latest consumer prices. Index data for November.
Fed Chairman Jerome Powell has repeatedly stated that interest rate hikes will continue in the near future, but the exact size and pace of these increases depends on economic data. In a speech last week, Powell warned that the Fed may raise its benchmark more than expected as it seeks to lower inflation.
Investors estimate a roughly 75 percent chance that policymakers will raise the benchmark interest rate by half a percentage point — a sign that the Fed is slowing the pace of its policy tightening. The Fed has raised interest rates three-quarters of the time in its last four meetings.
However, the market still sees the possibility of another larger, three-quarter hike of 25%.
“There’s no doubt equity markets want to go higher, but that depends on keeping inflation under control,” said Peter Essele, head of portfolio management at Commonwealth Financial Network. This was reported by CNBC. “So any time you print on an economic number that’s higher than you expect, it’s going to add to inflationary concerns, which will push rates up.”
Tesla was among the biggest losers of the day. Shares of the electric car maker fell 6.4 percent to $182.45 after warning it may cut Model Y production by more than 20 percent due to weak demand in China.
In the cryptocurrency sector, bitcoin fell about 1% to $16,922 as the FTX bankruptcy reverberated through the industry.