U.S. stocks performed well on Tuesday as traders await Wednesday’s news on the Consumer Price Index (CPI).
- The U.S. Bureau of Labor Statistics will release June’s CPI statistics on Wednesday, July 12, at 8:30 am.
- Investors anticipate good news but have already factored in another interest rate hike at the Federal Reserve’s July 25-26 meeting.
- Major indexes rallied in anticipation of the announcement, including the S&P500 (0.67%), Dow 30 (0.93%), and Nasdaq (0.55%).
- May’s CPI was reported at 4%, the lowest since March 2021 and a notable decrease from June 2022’s peak of 9.1%.
- A new report from the National Federation of Independent Business also shows small business confidence has hit a seven-month high, Reuters reports.
Why It’s Important
Between March 2022 and May 2023, the Federal Reserve hiked interest rates 10 times, increasing the rate to a range of 5% to 5.25%. With the economy and banks beginning to show signs of stress, the Fed made the decision to pause interest rate hikes for the June meeting.
The economy continues to show signs of resilience in spite of high-interest rates, with the most recent jobs report for June showing that hundreds of thousands of new jobs are being created and that optimism is strong. Inflation indicators are moving in the right direction.
Tuesday’s stock rallying suggests that investors are confident that the Fed is moving in the right direction and believe that interest rate hikes are on the way out, although it remains to be seen if the Fed will hike rates again for their planning September meeting. The Fed remains committed to lowering inflation to 2%, regardless of how long it will take and if a recession is necessary to do so.
“I think [on Wednesday] you’re going to see further evidence that the CPI-measured inflation is continuing its descent. And a lot of that was because of the impacts of COVID. But that’s not good enough for the Fed. The Fed worries about there being [a] wage-price spiral. I think there’s going to be a recession because the Fed [will] keep going until they see the labor market crack and until wage [growth] goes well below 4%,” Northwestern Mutual Wealth Management CIO Brent Schutte tells Yahoo Finance.
“The central banks need to trigger a recession to force unemployment to pick up and create enough demand destruction, but we’re not there yet,” Societe Generale economist Kokou Agbo-Bloua tells CNBC. “The labor market is super tight, and you have lower labor productivity growth which now is pushing unit labor costs and you get this negative spiral of wage prices. The central banks need to trigger a recession to force unemployment to pick up and create enough demand destruction, but we’re not there yet.”