The latest inflation numbers offer some explanation as to why the markets are ignoring the Fed’s own take on when a first rate cut is likely to come.
U.S. consumers prices were unexpectedly unchanged in May – a sign that price pressures are easing even if overall annual inflation is still running high at just over 3%.
Most economists continued to expect two rate cuts, starting in September, arguing that inflation had turned the corner after surging in the first quarter.
So, world markets — it appears — have chosen to take their cue from the inflation data, released just hours before the Fed’s monetary policy statement, rather than the Fed messaging.
To be fair, though, Fed policy makers have said – once or twice – that they will react to the incoming data.
Stock market futures point to a positive start for Wall Street, a day after the S&P 500 and Nasdaq posted record closing highs for a third straight day.
U.S. Treasury yields are higher, but only modestly so.
For some, signs of falling inflation could be a positive sign for the large swathes of the stock market that have languished in a rally led by Big Tech.
Yes, the S&P 500 is up about 14% this year, but around 60% of the return has been driven by six companies whose shares have an outsized weighting in the index: Nvidia, Microsoft, Apple, Meta Platforms, Alphabet, and Amazon.com, data from S&P Dow Jones Indices showed.
