Major Wall Street indices fell on Thursday after the producer price report came in higher than expected, reducing investors’ hopes for possible Federal Reserve (Fed) interest rate cuts this year.
The Labor Department report showed that producer prices rose in July at the fastest pace in three years due to sharp increases in goods and services prices, indicating likely inflation growth.
Traders lowered expectations for Fed rate cuts for the rest of the year from about 0.63% to 0.57%, although they still forecast a quarter-point reduction in September.
“The Fed is likely to offer a 0.25% rate cut in September, but it will be a modest reduction. It is too early to expect a serious easing cycle,” said Thierry Wizman, global currency strategist at Macquarie Group.
The next key indicator will be the Personal Consumption Expenditures (PCE) price index, to be released later this month. If signals of rising inflation in the services sector appear, the market will react negatively.
A separate report showed that the number of Americans filing new unemployment claims decreased last week.
As of 11:55 a.m., the Dow Jones industrial index fell 163.83 points, or 0.36%, to 44,758.44; the S&P 500 dropped 9.96 points, or 0.16%, to 6,456.62; the Nasdaq Composite declined 26.59 points, or 0.12%, to 21,686.56.
Recent data on labor market weakness and moderate consumer price growth have strengthened expectations for potential rate cuts next month. However, the report raised concerns that import tariffs could affect prices and slow stock growth.
On Thursday, 8 of the 11 S&P 500 sectors fell. The largest declines were in materials stocks – down 1.3% – as well as small business and residential real estate stocks – each down more than 1%.
St. Louis Fed President Alberto Musalem said a 0.5% rate cut in September is not justified, while Treasury Secretary Scott Bessent noted that such a move is possible.
Cisco Systems shares lost 1.4% after reporting earnings in line with expectations. Deere & Co shares fell 7.4% due to lower quarterly profits and a revised annual forecast. Tapestry shares dropped 14.3% after handbag maker Coach forecasted annual profits below expectations. Both companies also warned of possible tariff impacts on their business.