US Stocks Close at Record Highs on Slower Inflation - Latest Global News

US Stocks Close at Record Highs on Slower Inflation

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U.S. stocks closed at a record high after data showed inflation fell slightly to 3.4 percent in April, prompting traders to increase their bets on Federal Reserve interest rate cuts this year.

Consumer price index data released by the US Labor Department on Wednesday was in line with economists’ expectations. It compared with the 3.5 percent rate in March, ending a four-month streak in which inflation exceeded expectations.

“It’s some relief that the CPI didn’t come in higher than forecast for the first time this year,” said Eric Winograd, senior fixed income economist at AllianceBernstein.

Traders in the futures market reacted to the report by fully pricing in the possibility that the Fed would cut interest rates twice this year, after pricing in between one and two rate cuts on Tuesday.

U.S. stocks hit new highs on the news while Treasury yields fell. The S&P 500 closed 1.2 percent higher, hitting its first record closing high since late March and sending the blue-chip index up 11.3 percent this year. The tech-heavy Nasdaq Composite climbed 1.4 percent, hitting its second record in as many days.

The yield on two-year government bonds, which changes with interest rate expectations, initially fell to 4.71 percent – the lowest level since the beginning of April. It later made up for some of this and was trading 0.09 percentage points lower at 4.73 percent in late afternoon trading.

There were also encouraging signs about price pressures in Europe after the EU said earlier in the day that it expected inflation to fall faster than expected this year. The regional stock index Stoxx 600 gained 0.6 percent and closed at a record high.

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The figures come a day after Fed Chairman Jay Powell warned that the U.S. central bank may need to keep interest rates high for longer as it struggles to contain persistent inflation.

After Wednesday’s data, Winograd warned: “There’s nothing here that suggests inflation depends on the Fed.” [2 per cent] short-term goal”.

The central bank bases its inflation target on the private consumption expenditure index, which most recently rose by 2.7 percent in March compared to the previous year.

With less than six months to go before the U.S. election, high inflation has dented President Joe Biden’s poll numbers on the economy. Even though the annual CPI has fallen sharply since its peak during his presidency in 2022, many voters are still dissatisfied with higher price levels for many goods.

“Today’s inflation numbers are seen by some as progress and by others as a sign that inflation is still a problem,” said Erik Gordon, a professor at the University of Michigan’s Ross School of Business, who conducts the Financial Times’ monthly survey conducted this year has shown continued dissatisfaction with inflation. “It’s probably not good news for the Biden campaign, but it could have been a lot worse.”

According to Wednesday’s figures, core consumer prices – which exclude fluctuating food and energy costs – rose 3.6 percent last month compared to a year ago. This was the lowest value since April 2021.

On a monthly basis, core CPI rose 0.3 percent in April, compared with gains of 0.4 percent in the previous three months.

Ryan Sweet, U.S. economist at Oxford Economics, called the data “a very small step forward.” [the] The right direction,” although “we would have to spend another two or three months before you hear the Fed sounding more confident.”

In April data, housing inflation remained high at 5.5 percent on an annual basis – while monthly gains were steady at 0.4 percent – as housing costs continued to be a key driver of inflation. However, monthly price increases for transportation services and medical supplies eased, while they remained stable for energy. Food prices remained unchanged on a monthly basis, rising 2.2 percent over the past year.

The slightly cooler inflation data follows April’s jobs data that showed a slowdown in job creation – which will also give the Fed more confidence that the US economy is not experiencing a new acceleration.

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