Inflation Fears Strike Again

Inflation concerns on Friday once again pulled the rug from under investors struggling to find their footing as the Federal Reserve's battle against rising consumer prices shakes the economic terrain. The broad S&P 500® Index fell 2.4%, while the tech-focused Nasdaq dropped 3.1%

Stocks gave up on a short but sharp rally after preliminary survey data from the University of Michigan showed consumers' expectations for the path of prices worsened between September and October. The survey's median expectation for the inflation rate in October 2023 rose to 5.1%, from a year-ahead rate of 4.7% in September. At the same time, respondents' expectations of inflation five years from now also grew more pessimistic. Those findings came a day after government data showed the annual inflation rate remained high in September.

Negative views about inflation can become a self-fulfilling prophecy if consumers start buying more today in anticipation of higher prices tomorrow—which raises the follow-on risk that the Fed will maintain its aggressive posture toward interest rates.