Wall Street’s main indexes declined on Thursday, after a hotter-than-expected producer prices report dampened investor expectations of potential interest-rate cuts by the Federal Reserve this year.

A Labor Department report showed the Producer Price Index rose 3.3% on an annual basis in July, higher than the 2.5% gain expected by economists polled by Reuters. On a monthly basis, it rose 0.9%, compared with an estimated 0.2% rise.

Traders lowered their Fed rate-cut expectations for the rest of the year to about 58 basis points, according to data compiled by LSEG, compared with around 63 bps before the report.

But they are still fully pricing in a quarter-percentage-point cut in September.

“It’s sending a mixed message about the economy,” said Peter Andersen, founder of Andersen Capital Management in Boston.

“We have been too anxious to draw a conclusion that the economy is fine, it’s not overheated. But this wholesale data does show that perhaps there is some inflation working and we shouldn’t be so quick to conclude that we need to cut interest rates.”

At 09:42 a.m. ET, the Dow Jones Industrial Average fell 164.29 points, or 0.37%, to 44,757.98, the S&P 500 lost 16.84 points, or 0.26%, to 6,449.74 and the Nasdaq Composite lost 22.69 points, or 0.10%, to 21,690.45.

Recent data reflecting labor market weakness and a moderate rise in consumer prices had strengthened expectations that the central bank will potentially lower interest rates next month.

However, Thursday’s report fanned concerns that U.S. tariffs on imports could start to impact prices in the coming months and dampen a rally in U.S. stocks that had helped the benchmark S&P 500 and tech-heavy Nasdaq log record highs over the past two sessions.

On Thursday, nine of the 11 S&P 500 sectors declined, with materials, down 1.2%, falling the most. Rate-sensitive small-caps and housing stocks also dropped more than 1% each.

Separate data showed the number of Americans filing new applications for jobless benefits fell last week amid low layoffs.

A report also showed San Francisco Fed President Mary Daly pushed back against the need for a 50-basis-point interest rate cut next month, a day after Treasury Secretary Scott Bessent said an aggressive half-point cut was possible.

Cisco Systems lost 1% after the network equipment manufacturer’s broadly in-line forecast did little to encourage investors.

Deere & Co fell 8% after the farm-equipment maker reported a lower quarterly profit and tightened its annual profit forecast, while Tapestry plunged 17.6% after the Coach handbag maker forecast annual profit below estimates.

Both companies warned of tariffs impacting their business.

Later in the day, investors will also tune into remarks from St. Louis Fed President Alberto Musalem, a Federal Open Market Committee voting member this year.

Declining issues outnumbered advancers by a 5.05-to-1 ratio on the NYSE and by a 3.38-to-1 ratio on the Nasdaq.

The S&P 500 posted four new 52-week highs and no new lows while the Nasdaq Composite recorded 24 new highs and 31 new lows.

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(Reporting by Johann M Cherian in Bengaluru; Editing by Devika Syamnath)