CPI data amplifies speculation of Fed rate cut

Market dynamics witnessed a surge as Wall Street traders propelled stocks upwards and bond yields descended, spurred by signs of inflation deceleration that reinforced expectations of forthcoming rate reductions by the Federal Reserve.

By Ahmed Azzam | @3zzamous | 15 May 2024

Market close
  • Equities ascend, bond yields decline

  • Core CPI experiences cooling trend, marking first decline in six months, alleviating Fed concerns

  • S&P 500 poised to achieve fresh record high on Wednesday

The market witnessed a surge in equities following the release of April's consumer price index data, revealing a cooling trend in inflation for the first time in half a year. The S&P 500 index appeared primed to notch its 23rd record high in 2024. Concurrently, Treasury two-year yields experienced an eight basis point drop, settling at 4.73%. Market indicators reflected an augmented anticipation of accelerated policy easing by the Federal Reserve throughout the year.

According to governmental data disclosed on Wednesday, the core consumer price index, which excludes volatile food and energy expenses, exhibited a 0.3% increase from March. On an annual basis, it registered a 3.6% advance. While these metrics may instill a degree of optimism within the Fed regarding a resumption of the downward trajectory in inflation, policymakers remain inclined towards awaiting further data readings to fortify their confidence before contemplating interest rate adjustments.

Chair Jerome Powell, in a speak made on Tuesday, underscored the necessity for patience, emphasizing the central bank's commitment to allowing restrictive policies to take effect. Certain policymakers have conveyed skepticism regarding any rate cuts throughout the year.

The Federal Reserve continues to exert efforts to mitigate inflationary pressures by tempering demand across the broader economy. Concurrent data released on Wednesday depicted stagnant retail sales in April, suggesting that elevated borrowing costs and burgeoning debt levels are fostering increased prudence among consumers.

In addition to housing expenses, the uptick in the consumer price index was predominantly propelled by escalations in service costs such as car insurance and medical care, with apparel prices recording their most significant surge since June 2020.