CPI inflation shock sends stocks soaring, revives Fed rate cut bets

Monthly inflation eases the most in four years, with headline CPI falling to the lowest since 2021, as the Fed prepares its key June rate decision.

Jun 12, 2024 - 18:30

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CPI inflation shock sends stocks soaring, revives Fed rate cut bets

U.S. inflation pressures eased notably last month, giving the Federal Reserve a key set of figures ahead of its key June rate decision later in the session.

On Wednesday the headline Consumer Price Index for May was pegged by the Commerce Department at 3.3%, down from the prior month's tally of 3.4% and just inside Wall Street's consensus forecast.

On a monthly basis, inflation was flat with April levels, much slower than the 0.3% gain in April and marking the smallest rate of price increases in four years.

So-called core inflation, which strips out volatile components like food and energy, slowed to an annual rate of 3.4%, the lowest in more three years and also better than Wall Street's 3.5% forecast.

The monthly reading of 0.2% was also inside Wall Street forecasts, and inside the final April reading of 0.3%.

The Fed will publish fresh growth and inflation projections alongside its June rate decision later today in Washington.
Chip Somodevilla/Getty Images

U.S. stocks powered higher in the wake of the data release, with futures tied to the S&P 500 suggesting a 44 point opening-bell gain and those linked to the Dow indicating a 288 point advance.

The rate-sensitive Nasdaq, meanwhile, extended yesterday's record close and is expected to rise 170 points.

Benchmark 10-year Treasury note yields fell 10 basis points following the data release to change hands at 4.299% while 2-year notes were pegged 0.13 percentage point lower at 4.708%.

US consumer prices did not rise in May 2024. The last time prices did not increase was in July 2022!#inflation #FederalReserve pic.twitter.com/fnxLcfVhkU— jeroen blokland (@jsblokland) June 12, 2024

The U.S. dollar index, which tracks the greenback against a basket of six global currencies, was marked 0.60% lower at 104.603, the lowest in nearly two months.

The Fed will publish fresh growth and inflation forecasts later today, which will feed into the so-called dot plots, which are a summary of where officials see Fed interest rates over the coming year and beyond.

The last set of dots, published in March, pointed to three quarter-point rate cuts this year.

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CME Group's FedWatch now suggests little chance of a Fed rate move over the next policy meeting after today, in July, but now pegs the chances of a September rate cut at around 70%, up from just over 50% prior to the inflation release.