After inflation statistics showed that consumer price hikes slowed in March and Fed minutes showed that additional rate increases haven’t been ruled out, U.S. stocks declined on Wednesday, reversing gains from earlier in the day.
The Dow Jones Industrial Average (DJI) declined by 0.11% and the S&P 500 (GSPC) dipped by 0.41%. The heavily tech-focused Nasdaq Composite (IXIC) fell by 0.85%.
Following the publication of the Fed minutes from its most recent policy meeting in March, bond rates began to decline. The yield on the 10-year note decreased slightly to 3.40%, and on Wednesday, the yield on rate-sensitive two-year notes decreased to 3.97%.
Some of the most important information from the Federal Reserve’s meeting minutes from March, when the bank boosted interest rates by 0.25%, revealed that staff members believed the economy would likely enter a recession later this year. Concerned about the issues in the banking sector, officials reduced their forecasts for rate increases, and some even thought about stopping them altogether.
The image of the state of inflation in the United States was improved by data from earlier in the day. According to the March consumer price index, prices increased at the weakest rate since May 2021 last month. In comparison to February’s 0.4% increase, the consumer price index increased by 0.1% in March. Compared to predictions of 5.2%, the headline inflation rate for March increased at a 5.0% annual rate.
Core CPI, which excludes food and energy, increased by 5.6%, as predicted. However, even as the residential market stabilises, housing expenses continue to be a major contributor to inflation, according to BLS data.
“Today’s CPI relieves the Fed temporarily of some pressure. Markets will see a brief respite due to moderating pricing pressures and indications of a cooling labour market, according to a post by Lazard’s chief market analyst Ronald Temple.
“While this is encouraging news, tightening has not stopped. Core inflation is still far higher than the Fed’s target, and getting to 2% will be difficult. The Fed needs to do more before it can declare victory over inflation because core CPI is likely to end the year above 3%, Temple continued.
The CPI report released on Wednesday will continue to be studied by investors as it may offer some indications as to whether the Fed will keep raising rates at its upcoming meeting. According to data from the CME Group, markets have priced in a 69% chance that the Federal Reserve will increase interest rates by another 0.25% in May. When compared to before to the publication of the CPI data, that decreased slightly.
Mary Daly, president of the San Francisco Fed, spoke the most recent Fedspeak on Wednesday. Daly spoke for the first time since the failure of the institution under the San Francisco Fed’s supervision, Silicon Valley Bank. According to Daly, the “full impact of this policy tightening is still making its way through the system.”
Aside from that, “the strength of the economy and the elevated readings on inflation suggest that there is more work to do,” she added.
Prior to the May meeting, three Fed speakers on Tuesday discussed the possibility of another rate hike. Despite a robust labour market and sticky pricing pressure, New York Fed President John Williams told Yahoo Finance’s Jennifer Schonberger that the Federal Reserve faces a challenging task in bringing inflation to the Fed’s target level of 2%.
Separately, Philadelphia Fed President Harker stated that he aimed to “get rates above 5[%] and then sit there for a while,” indicating at least one additional 0.25% hike.
Austan Goolsbee, president of the Chicago Federal Reserve, adopted a more dovish stance in contrast, advising the Fed to exercise caution when hiking rates “too aggressively” until it can determine “how much work the headwinds are doing for us in getting down inflation.”
In other news, the Bank of Canada maintained interest rates for a second straight meeting, citing recent data that indicated an easing of inflation.
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