The world’s richest people took a hit to their net worth on Tuesday after stocks had their worst day in two years.
Jeff Bezos’ net worth fell by $9.8 billion and Elon Musk’s net worth fell by $8.4 billion. According to Bloomberg’s Billionaires Index, Musk is the world’s richest person with a net worth of $25 billion. Bezos is second with $150 billion.
Mark Zuckerberg, Larry Page, Sergey Brin and Steve Ballmer all lost more than $4 billion, while Warren Buffett and Bill Gates lost $3.4 billion and $2.8 billion, respectively.
The Labor Department said on Tuesday that stocks fell after the consumer price index fell slightly to 8.3% from 8.5% in July.
However, government data on Tuesday showed that the CPI rose 0.1% from a monthly comparison in August after staying flat in July, a disappointing result amid widespread expectations that inflation would fall this month.
When the news broke, the stock market immediately plummeted and the US dollar rose as data showed US inflation had slowed less than expected.
The Dow Jones Industrial Average fell nearly 1,300 points on the news on the New York Stock Exchange on Tuesday. Technology stocks plunged more than 500 points (4.4%).
Bitcoin price also fell 7.34% to $21,161. Cryptocurrencies have fallen 41% over the past six months.
Ethereum price fell 4% to $2,389, down 30% this year.
Biden reacts to inflation report
President Biden was optimistic that the data showed progress was being made in fighting inflation.
“This month has seen little change in prices overall, gasoline prices have fallen and wages have risen. This is good news for American families.”
But he admitted that “it will take more time and more determination to bring inflation down.”
Fed aggressively raises rates
However, markets reacted negatively to news that inflation is falling at a slower pace than economists had expected.
This surprising result means the Fed is increasingly likely to raise rates aggressively.
Chris Zaccarelli, Chief Investment Officer of the Independent Advisor Alliance, said: New York Post: “Inflation is a problem, but the key lies in the labor market.
“It’s hard to imagine a scenario where the inflation problem will go away on its own, as long as unemployment is extremely low and consumers are confident in their spending.”
He pointed out that the Fed must make unpopular decisions to control inflation.
“The Fed has the worst problem in the world, it’s a political problem, not an economic one,” Zaccarelli said.
“If you think the Fed has been (and did) get too much critique by previous administrations, wait until we see what kind of critique it will get because it deliberately creates an economic scenario in which unemployment rises significantly.”
‘It’s a lot hotter than I thought.‘
“August headlines and key US CPIs were much higher than expected,” said Jay Zhao-Murray, Monex Market Analyst.
He added, “This is leading the currency and bond markets to initiate a quick and dramatic reversal in recent price movements, with traders and investors primarily positioned to ease inflation.”
He pointed to key inflation, excluding volatile energy and food prices, which Fed policymakers are paying particular attention to. This is a 0.6 percentage point increase from the previous month, and 0.3 percentage points higher than the 0.3 percentage point in July.
The market was already pricing another 75 basis point rate hike from the Fed at the next meeting, but there was hope that the Fed could calm down once it passes the inflation peak.
However, the inflation figures were “hotter than expected in August and gave some chills in the high inflation/highest hawk/soft landing chatter,” said Briefing.com analyst Patrick O’Hare.
Stocks that had recently rebounded abruptly fell in hopes that when inflation peaks, it can quickly end hawkish rate hikes, avoid a recession and achieve a “soft landing” for the economy.
The world reacts to bad inflation news
Fed President Jerome Powell has said that rates will continue to rise until inflation subsides.
Zhao-Murray said inflation data has strengthened market expectations for the next rate hike by the Fed.
Some predicted that the Fed would raise 0.75 percentage points, but now the 0.75 percentage point increase is the lowest point, while others are expecting a one point increase.
Market analyst Michael Hewson said Tuesday’s key inflation figures mean more aggressive rate hikes are needed to contain inflation.
“The talk of peak inflation still holds true, but lowering it from this level is going to be a much tougher fight,” he said.
Inflation has soared worldwide this year due to sky-high energy and food costs.
This is due to significant supply constraints after the economy resumed from the pandemic lockdown and in the aftermath of Russia’s invasion of Ukraine.
The dollar surged as the Fed moved earlier and more aggressively than other central banks to raise interest rates and contain inflation.