Wall St staggers to higher close as Fed rate hike looms

NEW YORK, Sept 14 (Reuters) – Wall Street ended a directionless session higher on Wednesday as an on-target inflation report largely stanched the flow of Tuesday’s sell-off and investors pressed the “pause” button.

All three indexes wavered throughout the day, but ultimately ended in positive territory. They all failed to meaningfully recover ground lost in Tuesday’s carnage, which wrought their largest percentage plunges in more than two years.

“Today is a lick-your-wounds day, after taking body blows yesterday,” said Ryan Detrick, chief market strategist at Carson Group in Omaha, Nebraska. “It’s a day of rest and that’s somewhat of a welcome sign.”

The Labor Department’s producer prices (PPI) data landed close to consensus estimates and provided some relief in the aftermath of Tuesday’s market-rattling CPI print, which came in hotter than expected. read more

“The inflation debate continues and yesterday was a harsh reminder that this a tough battle and the Fed needs to remain aggressive to put a lid on the widespread inflationary prices we’re seeing,” Detrick added.

The PPI report offered reassurance that inflation is indeed on a slow, downward trajectory.

But it still has a long way to go before it approaches the Federal Reserve’s average annual 2% inflation target, and while financial markets have fully priced in an interest rate hike of at least 75 basis points at the conclusion of the FOMC’s policy meeting next week, they see a 22% likelihood of a super-sized, 100 basis-point increase, according to CME’s FedWatch tool.

Two-year U.S. Treasury yields, which reflect interest rate expectations, extended Tuesday’s rise.

The size and duration of further interest rate hikes going forward have many market observers concerned over the lagging effects of the Fed’s tightening phase, with some viewing recession as unavoidable.

The transportation sector (.DJT), seen as a barometer of economic health and which provides a glimpse into the supply side of the inflation picture, was weighed down by rail stocks in the face of a potential strike.

“Does the White House really want rails to shut down and impact supply chains even more, less than two months before midterm elections?” Detrick asked. “We’re optimistic they can keep rails open.”

Railroad operators Union Pacific (UNP.N), Norfolk Southern (NSC.N) and CSX Corp (CSX.O) lost 3.7%, 2.2% and 1.0% respectively, even as Labor Secretary Marty Walsh met with union representatives in Washington in talks aimed at preventing a rail shutdown. read more

The Dow Jones Industrial…