QUESTION:
How did the CPI report and Fed decision affect the stock market performance?
RESPONSE:
The recent CPI report and Federal Reserve decision had a significant impact on the stock market. The CPI report, which was cooler than expected, led to a surge in major US stock indexes to record highs as it showed inflation on a trajectory cooler than it had started the year[1]. This positive reaction reflects investor optimism that the easing inflation could reduce the pressure on the Federal Reserve to maintain high interest rates.
However, despite the cooler CPI data, the Federal Reserve decided to hold interest rates steady and pushed out the start of rate cuts to perhaps as late as December[2]. This decision indicates a cautious approach from the Fed, likely due to ongoing concerns about inflation stability and economic growth. The Fed’s stance of potentially maintaining higher-for-longer rates was influenced by recent economic data suggesting that such a policy might be necessary[3].
Overall, the combination of these events led to mixed reactions in the stock market. While the initial response to the CPI report was positive, the Fed’s decision to delay rate cuts added a layer of caution, reflecting the complex interplay between inflation data, monetary policy, and market expectations.
References
[1] Americans are feeling rosier about their finances, the stock market and inflation’s decline [CNN]
When the April CPI showed inflation on a cooler trajectory than it had started the year, the major US stock indexes all surged to record highs. https://edition.cnn.com/2024/06/10/economy/may-survey-consumer-expectations/index.html
[2] Gold eyes first weekly gain in four on cooling U.S. inflation [CNBC]
The data followed a cooler-than-expected CPI report that was released just ahead of the Fed meeting on Wednesday, where the central bank held interest rates steady and pushed out the start of rate cuts to perhaps as late as December. https://www.cnbc.com/2024/06/14/gold-eyes-first-weekly-gain-in-four-on-cooling-us-inflation.html
[3] Fed meeting and inflation report both hit Wednesday, and the impact could be huge [CNBC]
The recent economic data, likely to be echoed by Wednesday’s CPI report, point to an evolving economy where higher-for-longer on rates is being treated as a much greater possibility. https://www.cnbc.com/2024/06/11/fed-meeting-and-inflation-report-both-hit-wednesday-and-the-impact-could-be-huge.html
