Stocks slid in midday trading Thursday as yet another decades-high inflation reading and signs of slowing consumer spending rattled investors, even as Federal Reserve Chair Jerome Powell admitted that the risk of a recession is growing.

The Dow Jones Industrial Average was down about 300 points, or about 1%, following the release of the fresh inflation data. The tech-heavy Nasdaq sank more than 180 points, or approximately 1.6%, while the broad-based S&P 500 declined about 40 points, or 1%.

The S&P 500 slipped into bear territory earlier this month – defined as a 20% decline from a recent high – and is pacing for its worst first-half performance since 1970, according to Reuters. The Nasdaq is tracking toward its steepest first-half declines on record.

The Personal Consumption Expenditures price index, the Fed’s preferred gauge for inflation, rose 6.3% in May, according to Commerce Department data released on Thursday. The reading showed that inflation remains a persistent threat to the economy, though it is showing signs of leveling off after a months-long surge.

Jerome Powell warned the Fed has little choice but to sharply hike rates.
Jerome Powell warned the Fed has little choice but to sharply hike rates.

“A lot of investors were expecting inflation data to really start to come down. But what we’re finding is that it’s a lot more challenging, and that the inflation data is remaining elevated for longer and probably has not peaked,” Sam Stovall, chief investment strategist at CFRA, told Reuters.

Consumer spending, a key input for US economic activity, rose just 0.2% in May, down from an increase of 0.6% the previous month. The increase was less than analysts expected and the smallest gain so far this year – a worrying sign as fears mount that the Fed will trigger a recession through its sharp interest rate hikes.  

Spending adjusted for inflation sank 0.4% compared to April.

“The rising cost of living absorbed all of the increased spending power from added jobs and higher wages in May,” said Bill Adams, chief economist for Comerica Bank. “Americans are running faster just to stay even.”

Stocks turned lower one day after Powell warned that the Fed had little chance but to move aggressively with rate hikes as it scrambles to keep inflation from becoming entrenched in the broader economy.

“There’s a clock running here,” Powell said at the European Central Bank’s economic policy conference in Portugal. “The risk is that because of the multiplicity of shocks, you start to transition into a higher-inflation regime. Our job is literally to prevent that from happening, and we will prevent that from happening.”

The Fed's preferred inflation gauge increased 6.3% in May.
The Fed’s preferred inflation gauge increased 6.3% in May.
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Powell noted there was “certainly” a “risk” that the Fed’s actions would cause an economic slowdown.

Cryptocurrency prices continued their trend of selling off in tandem with stocks. Bitcoin briefly sank below $19,000 as investors reacted to looming economic uncertainty and concerns about a brewing liquidity crisis among major cryptocurrency firms.

The national average gas price hovered near $4.85 per gallon on Thursday, dropping below record highs ahead of the busy Fourth of July travel weekend. Oil prices also declined, with the West Texas Intermediate oil benchmark dropping 2.85% to about $106 per barrel.

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