- U.S. stocks hit new records on Wednesday as traders took in sobering inflation and comments from the Federal Reserve.
- Inflation was lower than expected, with the Fed acknowledging that there had been “moderate” progress.
- The S&P 500 closed above 5,400 for the first time.
US stocks rose on Wednesday as investors reacted to sobering inflation data and the Federal Reserve’s latest interest rate cut guidance, with the S&P 500 closing at another record high.
Major stock indexes rose while bond yields fell, with the benchmark S&P 500 closing above 5,400 for the first time in history.
The 10-year Treasury note fell 7 basis points to 6.33%, but recovered from bigger losses earlier in the day after the central bank updated its outlook and said it would cut rates by a smaller amount than previously expected.
May’s Consumer Price Index data came in below expectations, marking the second consecutive month of declining inflation. Consumer prices rose 3.3% year-on-year, down from a 3.4% increase in April.
Fed officials kept rates on hold at the end of this week’s policy meeting but acknowledged “moderate” progress toward tame inflation. In their outlook released Wednesday afternoon, the Fed now expects to cut rates one time by the end of 2024, down from the three cuts expected earlier this year.
FOMC members said they do not believe it would be “appropriate” to cut interest rates until they have more confidence that inflation is trending back toward 2 percent.
“We need better data to gain confidence that inflation is sustainably on track to 2 percent. We know that reducing policy restraints too soon or too much could reverse the improvements in inflation we have made so far. At the same time, reducing policy restraints too late or too little could weaken economic activity too much,” Fed Chairman Jerome Powell said in remarks Wednesday.
Even as officials have backed off on their outlook for rate cuts, markets remain optimistic that monetary policy will soon be eased. Investors see a 62% chance of the Fed cutting rates three or more times by the end of the year, according to federal funds rate futures on the CME FedWatch tool.
“The Fed came into today’s meeting with a fair amount of clarity about its decision-making process, and policymakers are reacting to incoming data in line with that,” Bill Adams, chief economist at Comerica Bank, said in a statement. “If inflation continues to moderate, as has been the trend over the past year and a half, we expect the Fed to begin cutting interest rates in the second half of 2024.”
As of the close of trading at 4pm on Wednesday, U.S. stock indexes were as follows:
Commodities, Bonds and Cryptocurrencies:
- Oil futures rose. West Texas Intermediate crude rose 0.5% to $78.29 a barrel. Brent crude, the international benchmark, rose 0.6% to $82.42 a barrel.
- Gold rose to $2,319.92 an ounce.
- The yield on the 10-year Treasury note fell 7 basis points to 4.35%.
- Bitcoin fell to a low of $67,494.
