Market Wrap: Stocks Plunge as CPI Data Rules Out Fed June Pivot

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Recently, Wall Street traders reacted to a hotter-than-estimated inflation report, causing stocks and bonds to slide. This signals that the Federal Reserve may not be rushing to cut interest rates this year. The S&P 500 was down about 1% after the consumer price index exceeded forecasts for the third consecutive month. This increase in inflation has prompted concerns that the recent price pressures may not be temporary, leading to a higher-for-longer rates narrative gaining traction.

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Investors are now adjusting their expectations, with Fed swaps showing bets on only two rate cuts this year. This shift in market sentiment indicates that the path towards lower interest rates may be slower and more gradual than previously anticipated. As the Fed approaches its 2% inflation target, the possibility of two rate cuts in 2024 has become the base case scenario.

While the anticipation for a June rate cut may have diminished, the likelihood of rate cuts in July or September remains on the table. The strength of the US economy and persistent inflation pressures are influencing the Fed’s decision-making process. Market participants need to be prepared for a higher-for-longer monetary policy stance as the economy continues to show signs of robust growth.

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