Financial markets/economy

US inflation slowdown and market euphoria

Posted by MoneyController on 16.05.2024

Although slightly, US inflation slows down: general market rally and new records for the three major US stock market indices.

US inflation data for April

The latest data on US inflation show a slight slowdown: the Consumer Price Index rose by 3.4 % over the past twelve months, up from 3.5 % in March. The monthly figure shows a 0.3 % growth compared to the 0.4 % growth recorded in the previous two months. Gasoline and shelter prices accounted for 70 per cent of the total increase.

Market rally and record highs for US indices

The markets seemed to take these data very positively: Europe closed slightly higher, while the three major US indices reached their all-time highs, with the S&P 500 up 1.2%, the Nasdaq 1.4%, and the Dow Jones 0.9%. Asian markets also reacted positively to the US inflation data.

The Fed's monetary policy variables

As stated in an article by Natalie Sherman of the BBC, this data is unlikely to be conclusive as far as the Federal Reserve's monetary policies are concerned. On the one hand, this data signals that price increases are still well above the 2% target. On the other hand, as Richard Flynn, managing director of Charles Schwab UK, explains, there are more than one variable to consider when it comes to rate cuts: inflation in the coming months, but also economic data as well as labour and financial markets.

Market expectations on interest rate cuts

Market results show that optimism, bordering on enthusiasm, dominates most among economic players at the moment. In this regard, Alicia Wallace reports an analysis by Gary Pzegeo, head of fixed income at CIBC Private Wealth US: Pzegeo believes that markets are now pricing in two interest rate cuts by the Fed, the first in September and the second towards the end of the year.

Read also:

Stock markets back on top: what is behind the new record highs?

Rate cuts, US and Europe at different speeds, but watch out for risks

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