Wall Street’s main indexes opened mixed on Tuesday as investors wait for an important inflation report that could influence the Federal Reserve’s decision on interest rate cuts. The consumer price index (CPI) is set to be released before the market opens on Wednesday, and investors will be closely monitoring these figures, along with the Federal Reserve’s policy statement scheduled for Wednesday afternoon.
The consumer price index (CPI) measures the average change over time in the prices paid by consumers for a basket of goods and services and it is a key indicator of inflation, which affects the purchasing power of money. According to economists surveyed by Reuters, the headline consumer price index (CPI) is projected to rise by 0.1% in May, down from the 0.3% increase observed in the previous month. It will be the second gauge of U.S. inflation in June, following Friday’s hotter-than-expected wage growth numbers.
Although the U.S. central bank is widely anticipated to maintain its benchmark overnight interest rate in the 5.25%-5.50% range for the seventh consecutive meeting, investors will be keenly watching the statement and comments from Chair Jerome Powell for any hints about future plans.
Federal Reserve Rate Cut And Election
Joseph Kalish, chief global macro strategist at Ned Davis Research (NDR), predicts that there will be one Federal Reserve rate cut after the election, likely in December. However, he also suggests that a spike in unemployment this summer could make a September cut possible. Sam Stovall, chief investment strategist of CFRA Research in New York, added:
“Investors are playing it safe but we will continue to see all-time highs, and you don’t want to make emotional decisions. The S&P could set up another all-time high, CPI could come in weaker than expected, and the Fed could sound optimistic that at least one rate cut could occur before year-end.”
Even amidst reports of persistent inflation and fears of prolonged higher interest rates by the Federal Reserve, stocks have remained relatively stable in recent weeks. Wall Street strategists credit this resilience to an unexpectedly robust set of first-quarter earnings.
Robust earnings growth has fueled the US stocks and positive Q1 earnings results provide further support to the ongoing bullish view, even as we navigate the Fed and underlying economic conditions. Investors are currently navigating a complex narrative: on the one hand, the U.S. economy remains resilient, but on the other hand, inflation and rising interest rates pose potential challenges for the stock market.
