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US stocks fall as investors receive inflation warnings from the IMF and the Fed

Business Insider logo Business Insider 10/12/2021 (Carla Mozée)
Trader Leon Montana works on the floor of the New York Stock Exchange. AP Photo/Richard Drew © AP Photo/Richard Drew Trader Leon Montana works on the floor of the New York Stock Exchange. AP Photo/Richard Drew
  • US stocks closed lower Tuesday, a third consecutive loss for Wall Street's major benchmarks.
  • Stocks turned lower as the inflation warnings came from the IMF and a New York Fed survey.
  • Atlanta Fed President Raphael Bostic said "elevated inflation is episodic," and tied largely to the pandemic.

US stocks closed lower Tuesday after a wave of inflation warnings washed away earlier gains, highlighting a potential risk to global growth as investors prepared to enter third-quarter earnings season.

All three of Wall Street's major benchmarks swung into the red, stretching losses for the S&P 500, the Nasdaq Composite, and the Dow industrials into a third consecutive session.

Stocks pulled back as investors assessed caution about inflation from the International Monetary Fund and the Federal Reserve itself. The Survey of Consumer Expectations released by the Federal Reserve Bank of New York showed that short- and medium-term inflation expectations have increased. Expectations for three years ahead rose to 4.2% in September, the highest rate since the survey started in 2013.

Here's where US indexes stood at 4:00 p.m. on Tuesday:

The International Monetary Fund early Tuesday said inflation has "increased markedly" in US and in some emerging market economies. "Although price pressures are expected to subside in most countries in 2022, inflation prospects are highly uncertain," it said. The group trimmed its 2021 global growth forecast to 5.9% from 6% as advanced economies grapple in part with supply disruption.

Raphael Bostic, president of the Federal Reserve Bank of Atlanta, said elevated inflation rates may persist. Bostic is a voting member this year on the Fed's rate-setting board, the Federal Open Market Committee.

Video: Finding high-yield, low-risk inflation hedges in the ETF market (CNBC)


"I continue to believe currently elevated inflation is episodic, driven by pandemic conditions such as disruptions in supply chains and labor markets. A major caveat, though, is that the severe and pervasive supply chain issues will probably last longer than most of us initially expected," said Bostic in a virtual speech addressing the Peterson Institute for International Economics.

Fed Vice Chair Richard Clarida, meanwhile, said Tuesday he continues to see inflation pressures as largely transitory and that the Fed appears on track to complete tapering of assets purchases by the middle of 2022.

"Dr. Doom" economist Nouriel Roubini told Bloomberg on Tuesday the Fed may start reducing its monthly asset purchases from $120 billion in November but could "wimp out", or pause, the plan if economic growth slows and investors respond with a sharp selloff in markets as they did in 2018.

Investors will see the kickoff of the third-quarter earnings season Wednesday with JPMorgan & Chase's report among those on the docket. Bank of America has called the upcoming earnings season a "make or break" one for investors as companies have already flagged issues surrounding supply chain bottlenecks and rising labor costs.

Around the markets, investors poured the most cash into bitcoin-backed products in seven months as the cryptocurrency rallied past $50,000 last week, according to CoinShares.

The state of Alaska, one of the surprise winners from the GameStop short squeeze in January, cashed out most of its profit from its bet on the video-game retailer last quarter.

Gold rose 0.3% to $1,758.87 per ounce.

Oil prices were mixed. West Texas Intermediate crude tacked on 0.1% at $80.57 per barrel. Brent oil, the international benchmark, turned lower, down 0.2% to $83.46.

Bitcoin fell 2.9% to $55,698.24.

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