Stocks on Wall Street were relatively flat Tuesday as investors and corporate America braced for the Federal Reserve to raise interest rates by as much as three-quarters of a percentage point on Wednesday in a bid to slow soaring U.S. inflation rates.
The Dow Jones Industrial Average flitted up and down in early trading and the S&P 500 was little changed after slipping into bear market territory on Monday — a hangover from a worse-than-expected inflation report ahead of the weekend.
The Labor Department reported Tuesday the Producer Price Index, which gauges inflation before it hits consumers, surged 10.8% in May from a year earlier.
Concerns about soaring costs are heaping pressure on the central bank to take aggressive action, while prompting fears that Fed action will usher in a recession instead of giving the economy a soft landing.
Goldman Sachs analysts said they anticipate 75-basis-point rate hikes from the central bank in June and July, followed by a 50-basis-point hike in September and 25-basis-point increases in November and December.
The Goldman team cited a Wall Street Journal article that said the central bank was changing its thinking and considering a more aggressive move to dampen demand and corral inflation. Analysts previously anticipated a half-point increase — 50 basis points — at Wednesday’s session.
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The uncertainty caused major sell-offs on Monday before things cooled a bit Tuesday as investors awaited a Federal Reserve announcement set for Wednesday.
Inflation has been a major drag on President Biden’s first term and is a frequent talking point for Republicans eyeing big political gains in November.
Mr. Biden, speaking to a friendly crowd at the AFL-CIO union convention in Philadelphia, ticked through a series of infrastructure wins in last year’s bipartisan package and boasted his policies are cutting federal budget deficits. At the same time, he acknowledged that prices are too high and he is unleashing oil from the U.S. strategic reserve while cajoling other nations to produce more.
“I’m doing everything in my power to blunt Putin’s gas price hike,” Mr. Biden said.
The president said his social spending agenda, which is stalled in Congress, would cut costs for prescription drugs and alleviate economic pressure on families.
GOP lawmakers on Tuesday said that, given sticker shock at the pump and cash register, Mr. Biden must stop plans for government spending or tax increases.
“Sustained high inflation is out of control. Wholesale prices have been rising at double-digit rates for six consecutive months, hammering manufacturers, small businesses and consumers,” said Sen. Mike Crapo, Idaho Republican and ranking member of the Senate Finance Committee. “As Americans continue to face sticker shock at the gas station and grocery stores, tax hikes, which are eventually passed on to consumers, are not the answer.”