Dow Jones, S&P 500 stock market futures point to sharply lower open

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NEW YORK (AP) — U.S. markets tumbled sharply before the opening bell Monday with the S&P 500 pointing to bear territory amid seeping pessimism over stubborn, four-decade high inflation.

Futures for the Dow Jones industrials lost more than 500 points, or 1.7%, while futures for the S&P fell 2.2%, or 91.50, to 3,809. That’s a decline of more than 20% since Jan. 3 and if it holds until markets close, it would push Wall Street’s main barometer of health into a bear market.

Economists had expected that a U.S. report Friday on consumer prices would show the worst inflation in generations had slowed a touch last month. But inflation accelerated to 8.6% in May.

Inflation data may prompt Fed to raise interest rates even higher

That would suggest the Federal Reserve will need to continue raising interest rates aggressively and taking other measures to slow the economy and to cool inflation.

The growing expectation is for the Fed to raise its key short-term interest rate by half a percentage point at each of its next three meetings, beginning next week. Last month’s half-point increase is the only time since 2000 that the Fed has raised rates by that much.

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Surging prices and expectations about Fed policy have sent the two-year Treasury yield to its highest level since 2008 and the S&P 500 down 18.7% from its record set in early January.

Bitcoin, crypto crashing

On the opposite end of the spectrum of risk, cryptocurrencies are getting pummeled. Bitcoin tumbled another 12% and fell below $24,000 early Monday, levels last seen in the latter part of 2020. The price for Bitcoin neared $68,000 late last year.

But the damage is broadening with retailers and others warning on upcoming profits.

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Record-low interest rates engineered by the Fed and other central banks have helped keep investment prices high. Now the “easy mode” for investors is being switched off. Since higher interest rates make borrowing more expensive, dragging on spending and investments by households and companies, there also is a risk the Fed could push the U.S. economy into a recession.

The fear is that food and fuel costs will keep surging regardless of how aggressively the Fed moves, partly because of the crisis in Ukraine, which is a major breadbasket for the world.

Gas prices hit $5 nationally

On Saturday, the national average for a gallon of regular gas surpassed $5, by a fraction of a penny, according to the AAA auto club.

In other trading, benchmark U.S. crude oil lost $2.09 to $118.58 per barrel in electronic trading on the New York Mercantile Exchange. It lost 84 cents to $120.67 on Friday.

Brent crude, the pricing standard for international trading, gave up $1.99 to $120.02 per barrel.

Elisabeth Buchwald is a personal finance and markets correspondent for USA TODAY. You can follow her on Twitter @BuchElisabeth and sign up for our Daily Money newsletter here