The Dow fell more than 700 points on Friday, as rising inflation and tariff uncertainty weighed on investor sentiment.
A report on Friday from the US Labour Department showed that the Federal Reserve's preferred inflation measure – the core personal consumption expenditures (PCE) price index – rose more than expected in February. Core PCE prices, which strip out food and energy, rose 2.8 per cent annually compared to the 2.7 per cent forecast.
Headline PCE inflation rose 2.5 per cent year-on-year, in line with forecasts but unchanged from January.
The Dow Jones Industrial Average closed 715.08 points - or 1.68 per cent - lower to 41,583.90. The S&P 500 and Nasdaq Composite dropped 1.97 and 2.70 per cent, respectively, at the closing bell. The small-cap Russell 2K fell 2.20 per cent. Meanwhile the price of gold was up 0.82 per cent to $3,086.00 per ounce.
Friday's data showed that inflation in the US heated up before most of President Donald Trump's tariffs had gone into effect. It also comes before the April 2 date he has set for a series of levies against America's trading partners.
Canada and the European Union have said they are preparing retaliatory tariffs against the US.
Most economists say that the Trump tariffs could lead to an inflation resurgence, while others warn that his hardline stance on deporting migrants could upend the labour market.
Officials at the Federal Reserve, who last week voted to keep interest rates unchanged for a second meeting in a row, are debating whether Mr Trump's tariffs pose a one-time inflationary bump or not.
“We face the same fog as businesses and consumers,” Richmond Fed president Tom Barkin said on Thursday. “How does one drive in fog? Carefully and slowly, and if there’s a safe place to pull over, you do so to avoid getting in trouble. That’s where we are.”
A separate report on Friday showed that US consumer inflation expectations rose to a 32-year high over tariff anxiety. Consumers surveyed by the University of Michigan expect prices to rise by a yearly rate of 4.1 per cent over the next five to 10 years.
The latest survey by the university also showed consumer sentiment declined from 64.7 to 57, its lowest level in more than two years.
Fed Chairman Jerome Powell last week dismissed the Michigan survey as an outlier on long-run inflation expectations.
