U.S. stocks rebounded Wednesday after consumer prices increased at a higher than expected pace in January, fueling investor fears about rising inflation.
The Consumer Price Index (CPI) increased 0.5 percent in January, and 2.1 percent over the past twelve months, the Bureau of Labor Statistics reported Wednesday.
The index for all goods minus food and energy rose 0.3 percent, though economists had predicted a 0.2 percent increase.
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The unexpected price increases were projected to take a toll on the stock market, but the three major U.S. indexes closed with sharp gains.
The Dow Jones industrial average, S&P 500 and Nasdaq took 0.5 percent losses upon Wednesday’s open. The Dow finished 253 points higher (1 percent), the S&P gained 35 points (1.3 percent) and the Nasdaq finished with a 130-point gain (1.9 percent).
Traders fear that rising inflation could spur the Federal Reserve to raise interest rates at a quicker pace in 2018.
Dow futures fell more than 200 points in response to the news. S&P and Nasdaq futures declined 30 points and 73 points, respectively.
The Fed is expected to raise rates at least twice this year but aims to keep inflation about 2 percent as measured with the CPI. Higher inflation could prompt the Fed to raise rates more frequently to stop it from soaring.
“The Fed’s job now is to prevent the economy from overheating,” said Gus Faucher, PNC chief economist. “The Fed’s task is complicated by the recent tax cuts and spending deal, which will stimulate the economy at a time when the labor market is already at, or close to, full employment.”
Updated at 4:33 p.m.