Equities retreated from record highs on Wednesday as Treasury yields surged to multi-decade levels and Federal Reserve minutes confirmed that officials anticipate another interest rate increase before the year concludes.
The S&P 500 and the Nasdaq Composite each declined by 0.22%, while the Dow Jones Industrial Average lagged further, dropping 0.66%. The sell-off occurred amid rising bond yields that reached their highest points since 2002. The benchmark 10-year Treasury yield climbed to 5.365%, while the 30-year note also hit its peak since that year. The 10-year yield subsequently eased following a Treasury auction in which the government sold $39 billion in notes.
The pressure on markets was compounded by the release of minutes from the Federal Open Market Committee's latest meeting. The document indicates that most participants assessed another increase in the target range for the federal funds rate would likely be appropriate by year end. However, the minutes do not specify a timeline for this action, noting that future decisions depend on incoming information and its implications for the outlook and balance of risks.
Market expectations remained largely unchanged following the release. According to the CME Group's FedWatch tool, the odds of a hike at the October meeting stayed above 80%. This stance persists despite recent economic data that suggested some cooling in inflationary pressures. The September jobs report, released on Friday, was significantly weaker than expected, and the central bank's preferred inflation gauge came in below forecasts.
Commerce Department data showed the personal consumption expenditures price index rose a seasonally adjusted 0.3% for the month. The 12-month gain stood at 3.4%, lower than the 3.7% expected by economists. The core index increased by 0.2%, missing the 0.3% forecast, with the annual figure at 3%, below the 3.3% projected by analysts.
Despite these figures, Federal Reserve officials maintain that inflation concerns remain prominent. Minneapolis Fed President Neel Kashkari stated at a Council on Foreign Relations event in New York last week that inflation is running at around a 3% rate. He noted that this elevation has persisted for more than five years and argued that the recent data did not significantly alter that narrative. Kashkari also pointed to an updated GDP report and private payrolls released on Wednesday as evidence that the U.S. economy remains resilient.
Mary Daly, president of the Federal Reserve Bank of San Francisco, offered a different perspective on persistent inflation drivers. Speaking to Axios, Daly suggested that AI-related shortages could fuel inflation for longer than typical shocks, potentially necessitating further tightening. She indicated that constraints might spread from the technology industry into the wider economy beyond the one-to-three year period usually associated with regular economic disruptions.