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US stocks fell into bear market territory yesterday after the S&P 500 dropped more than 20% from an all-time high in January (see 101). Investors are wary of an economic downturn, analysts say, after Friday’s higher-than-expected inflation report showed inflation hit 8.6% in May—the highest year-over-year growth since December 1981. The S&P 500 fell 3.9% at close, the Dow Jones Industrial Average fell 2.8%, and the Nasdaq composite fell4.7%.
The market sell-off came ahead of the Federal Reserve’s two-day meeting over monetary policy, which begins today. The central bank may raise interest rates by as much as 0.75% in an effort to curb inflation. Such a move would be the steepest hike since 1994, and would come on top of 0.5% increases in March and May.
The Fed typically targets an annual inflation rate near 2%. Read more on the link between inflation and interest rates here.