Wall Street Cheers Soft Inflation Numbers: Stocks Up, Dollar Down as Fed Weighs Rate Cuts

WallStreet

A sigh of relief swept through financial markets on Wednesday as the latest Consumer Price Index (CPI) report offered a glimmer of hope in the fight against inflation. The monthly inflation rate in the U.S. dipped to 0.3%, down from 0.4% in March and exceeding economist expectations. While year-over-year inflation remains elevated at 3.4%, this represents a slight improvement over March’s 3.5%.

The report also included positive news on core CPI, which excludes volatile food and energy prices. Core CPI followed the overall trend, rising 0.3% in April, in line with forecasts, compared to 0.4% the previous month. Year-over-year, core CPI held steady at 3.6%.

This slowdown in inflation triggered a positive response in the cryptocurrency market. Bitcoin, known for its sensitivity to interest rates, jumped over 1% following the report. The expectation of tighter monetary policy had previously dampened investor enthusiasm.

The Federal Reserve had anticipated a more relaxed approach to monetary policy in 2024, based on declining inflation in 2023. However, persistent inflation and continued economic growth have forced a shift in strategy. Prior to the CPI report, the chances of a rate cut this summer were slim, with markets only pricing in a 50% possibility for September, according to the CME FedWatch Tool.

The release of the CPI report coincided with retail sales data, revealing a flat reading for April. This fell short of forecasts for a 0.4% increase and March’s 0.6% growth. Excluding auto sales, retail sales rose modestly by 0.2%, meeting expectations but marking a decline from March’s 0.9% gain.

Also Read: Bitcoin Back in Business: Analyst Predicts $100,000 Surge by Q4 2024

Traditional markets responded favorably to the subdued inflation and economic data. S&P 500 futures climbed 0.5%, while the 10-year Treasury yield dropped to 4.37%. The U.S. dollar also weakened by 0.5%, and gold prices edged up 0.7%.

While inflation remains a concern, April’s CPI report offers a much-needed reprieve. The Federal Reserve will be closely monitoring these trends as they decide on the future course of interest rates. This slowdown could pave the way for a potential policy pivot later in the year, bringing some relief to consumers and businesses alike.

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