U.S. equity markets pulled back Thursday as investors weighed hotter-than-expected inflation data and a cautious Federal Reserve stance, while the long-awaited debut of Figma injected new optimism into the tech IPO market.

The Dow Jones Industrial Average shed 330.30 points, or 0.74%, to close at 44,131.03, its worst daily performance in nearly three weeks. The S&P 500 declined 23.35 points, or 0.37%, to 6,339.55, while the Nasdaq Composite dipped 7.22 points, or 0.03%, finishing at 21,122.40. The Russell 2000 lagged with a 0.97% drop.

Inflation Surprises Reinforce Fed Caution

The selling pressure came on the heels of fresh economic data that cast doubt on the likelihood of a near-term interest rate cut. The June Personal Consumption Expenditures (PCE) index—the Fed’s preferred inflation gauge—rose 2.8% year-over-year, slightly ahead of the 2.7% forecast. Month-over-month, core PCE climbed 0.3%, driven largely by tariff-sensitive goods such as energy, food, and clothing.

This inflation print followed Wednesday’s Federal Reserve decision to hold rates steady, with Chair Jerome Powell emphasizing the importance of watching unemployment as a guidepost for policy. As of Thursday, futures markets have slashed the odds of a September cut to just 40%, down from over 60% earlier in the week.

Reinforcing inflation concerns, the Employment Cost Index (ECI) showed Q2 wages rose 1.0%, while benefits increased 0.7%, for a total gain of 0.9%—topping economist expectations.

Labor Market Shows Tension Ahead of July Jobs Report

The labor market remains a focal point. Initial jobless claims edged up to 218,000, but continuing claims held steady at 1.946 million. Meanwhile, announced layoffs rose sharply to 62,075 in July, up 29% from June, according to Challenger, Gray & Christmas. That disconnect—between low claims and high planned cuts—has raised questions about hidden stress in the job market pipeline.

Friday’s July employment report is expected to show a gain of 106,000–115,000 jobs and a rise in the unemployment rate to 4.2%. Average hourly earnings are forecast to grow 0.3% month-over-month. With year-to-date job creation averaging 133,000 per month, analysts say the labor market is cooling but remains resilient.

Figma’s IPO Sends a Signal

Against the backdrop of cautious monetary policy, the public debut of Figma provided a rare jolt of investor enthusiasm. Shares of the design software firm surged 256% to close at $117.59, after opening at $85 following its IPO pricing of $33 per share. Figma traded as high as $118.40 in after-hours trading. The IPO raised $1.2 billion and gave the company a valuation near $47 billion.

The offering was nearly 40 times oversubscribed, underscoring investor hunger for high-growth, AI-enabled tech firms. “These might be some of the best financials we’ve seen this year,” said Dean Quiambao, Technology Industry Leader at Armanino, citing Figma’s 46% revenue growth and 91% gross margin. “They got a ton of cash, they got a ton of growing revenue, and they’ve got a ton of excitement in their customer base,” he told the press.

Global Developments Add Caution

Overseas, the Bank of Japan held rates steady at 0.5% but raised its inflation outlook, signaling potential tightening ahead. The yen briefly strengthened before sliding to ¥149.65 against the dollar. This move comes just ahead of the one-year anniversary of Japan’s 2024 market crash and has stirred memories of past global volatility tied to Japanese policy shifts.

Looking Ahead

With tech earnings strong—Microsoft and Meta both reported blowout quarters—and consumer spending still robust, equity markets remain on relatively solid footing. But tariff-driven inflation, labor market crosswinds, and central bank ambiguity are forcing investors to reassess the timing and scope of future easing.

For now, the message from the data and policymakers is clear: the economy is cooling, but not cracking—and the Fed is in no rush to act.