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U.S. stocks rose to new records on Wednesday as traders took into account cool inflation and Fed commentary.
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Inflation was lower than expected and the Fed nodded to the “modest” progress that had been made.
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The S&P 500 closed above 5,400 points for the first time.
U.S. stocks rose Wednesday as investors banked on chilly inflation data and the Federal Reserve’s latest guidance on rate cuts, helping the S&P 500 close at another record high.
Major averages edged higher as bond yields tumbled. The benchmark S&P 500 closed above 5,400 for the first time ever.
The 10-year Treasury note fell seven basis points to 6.33%, up from steeper losses earlier in the day after the central bank upgraded its outlook to include fewer rate cuts than previously expected.
Consumer price index data for May were softer than expected, marking the second straight month of cooling in inflation rates. Consumer prices rose 3.3% year-on-year, compared to April’s 3.4% increase.
Fed officials kept rates unchanged at the end of this week’s policy meeting, although they acknowledged “modest” progress in reducing inflation. The central bank now plans just one rate cut by the end of 2024, compared with three cuts expected earlier this year, according to projections released Wednesday afternoon.
FOMC members said they did not think it was “appropriate” to cut rates until they had more confidence that inflation would return to 2%.
“We will need more good data to strengthen our confidence that inflation is moving sustainably towards 2%. We know that reducing policy discretion too early or too much could result in a reversal of the progress we have seen on inflation. At the same time, tapering policy too late or too little could unnecessarily weaken economic activity,” Fed Chairman Powell said in a statement on Wednesday.
Even as officials revise their outlook for spending cuts, markets are optimistic that monetary policy will ease soon. Fed fund futures show that investors see a 62% chance that the Fed will cut rates three or more times by the end of the year, according to the CME FedWatch Tool.
“The Fed made its decision-making process quite clear at today’s meeting, and their policymakers are responding to incoming data in a manner consistent with that process,” 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, the Fed will begin cutting rates in the second half of 2024.”
Here’s where the US indexes stood at 4pm on Wednesday:
In commodities, bonds and crypto:
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Oil futures rose. West Texas Intermediate crude was 0.5% higher at $78.29 per barrel. Brent crude, the international benchmark, rose 0.6% to $82.42 per barrel.
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Gold rose to $2,319.92 an ounce.
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The yield on ten-year government bonds fell by seven basis points to 4.35%.
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Bitcoin fell to $67,494.
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