Inflation dominates headlines, but not Wall Street

Investor optimism took few hits this week, despite building evidence that tariffs and geopolitical tensions have caused resurgent inflation.MANHATTAN (CN) — Multiple economic indicators this week warned about persistent inflation, but investors plowed straight ahead to set new records in two indices.Oil prices have continued to rise, with barrels of Brent crude spiking to nearly $106, while bond yields also kept inching forward, at one point hitting fresh 24-year highs.Investors were not dissuaded from buying equities, however, and volatile trading of tech shares caused the S&P 500 and Nasdaq to set new high marks, gaining 89 points and 176 points for the week, respectively. The Dow Jones Industrial Average increased 479 points since last Friday’s closing bell, as well.The gains came in spite of distressing economic data, including a report earlier this week from the Federal Reserve Bank of New York that found inflation has surged back due to the direct and indirect costs from Trump administration’s tariffs.As of February, Trump tariffs “contributed 2.9 percentage points to goods price inflation, and without them goods prices would have fallen slightly,” Fed researchers wrote.They added that “for every percentage point increase in average tariffs, consumer goods prices increase by about a quarter of a percent after one year,” adding that producer prices and consumer goods prices both increased as a result.The impact of tariffs on inflation is not lost on the Federal Reserve. In minutes from last month’s Federal Open Market Committee meeting, where the Fed raised interest rates for the first time in three years, the central bank blamed high core inflation on tariff increases, energy prices from the conflict with Iran and the artificial intelligence buildout.Most of the central bank members think at least one more rate increase “would likely be appropriate by year end.” Some prominent committee members have openly called for additional hikes, including an interest rate dove.In a speech earlier this week in Turkey, Federal Reserve governor Christopher Waller said he had changed his mind on interest rates after a raft of economic data this summer. “If the economic data continue to come in as expected, I anticipate additional hikes to support a timelier return of inflation to our 2% goal,” he said, noting “there is some flexibility about when those hikes will occur.”Waller, who was appointed to the board during the first Trump presidency and at one point was in the running to head the central bank, strongly supported rate cuts last year. He was one of two dissenting votes at one of the committee meetings last year, calling for a rate cut.However, the drawn-out conflict with Iran and “continued trade conflicts” changed his mind about whether rate hikes would be necessary. “Hopes for a quick ending to the Middle East conflict faded, and experts warned that low inventories and damaged infrastructure could keep oil prices high through 2027,” he said.Prices paid continues to increase in the services sector, according to the September survey from the Institute of Supply Management, to hit the highest point since mid-2022.Judging by the anonymous comments in the survey, many business leaders continue to worry about interest rates, the high cost of diesel fuel, and the increased cost of importing goods.And on Friday, the University of Michigan released a survey showing 54% of respondents plan to cut back on spending due to increased concerns over tariffs and gasoline prices. The university’s preliminary consumer sentiment index also dropped a few points.Subscribe to our free newslettersOur weekly newsletter Closing Arguments offers the latest about ongoing trials, major litigation and rulings in courthouses around the U.S. and the world, while the monthly Under the Lights dishes the legal dirt from Hollywood, sports, Big Tech and the arts.Additional Reads