Stocks fell and Treasury yields rose as data fueled speculation that the Federal Reserve is far from declaring victory over inflation, with bets on another hike this year increasing.

The S&P 500 has reversed a four-day gain. Bank stocks fell ahead of Friday's results from JPMorgan, Citigroup, and Wells Fargo. Bonds fell across the US curve, with the 30-year rate rising as much as 19 basis points after a securities auction drew low demand. The dollar has risen the most in the last five weeks. Swap contracts increased the chances of another quarter-point Fed hike to around 40%, up from around 30% on Wednesday.

Last month, the so-called core consumer price index, which excludes food and energy costs, rose 0.3%. It increased 4.1% year on year, the smallest increase since 2021. Economists believe that the core gauge, rather than the overall CPI, is a better indicator of underlying inflation. Energy costs boosted this measure's 0.4% increase. Forecasters predicted a 0.3% monthly increase in both the overall and core measures.

Swap contracts continue to anticipate a Fed pivot to rate cuts next year, but with a slightly lower probability.

Fed Governor Christopher Waller stated on Wednesday that the US central bank will wait and see what happens before taking further interest rate action as financial markets tighten. On Monday, Vice Chair Philip Jefferson stated that he would "remain cognizant of the tightening in financial conditions as evidenced by higher bond yields." And Dallas Fed President Lorie Logan stated that rising bond risk premiums "could do some of the work of cooling the economy for us, leaving less need for additional monetary policy tightening."