Interest rates have been a hot topic on Wall Street lately, with investors closely monitoring inflation data and the likelihood of rate cuts by the Federal Reserve. A recent report on the consumer price index for May has sparked optimism among investors, as consumer prices fell below expectations for the second consecutive month.
According to the Bureau of Labor Statistics, inflation remained flat in May and was up 3.3% year over year. This data point has renewed hope for potential rate cuts by the Fed later this year, with some analysts predicting that three rate cuts by the end of 2024 are now back on the table.
The CME FedWatch Tool indicates a 72% chance that the Fed could cut rates three times or more by December, leading to speculation that the first rate cut could come as soon as July. However, most analysts believe that a rate cut in September is the most likely scenario.
Skyler Weinand, Chief Investment Officer of Regan Capital, sees the recent inflation readings as a positive sign for the Fed to start cutting interest rates as soon as September. He believes that the Fed may be on track to provide some market relief in as little as three months.
While some analysts suggest that a July rate cut is possible, others like Preston Caldwell, Chief US Economist at Morningstar, believe that rate cuts starting by September are “overwhelmingly likely.” The easing of headline inflation has been attributed to lower gas and food prices, with the gas index dropping 3.6% in May.
Looking ahead, investors are eager to hear from Fed Chair Jerome Powell for further guidance on the path of rate cuts. Despite recent encouraging inflation data, Powell is expected to hold off on signaling rate cuts immediately, given the hotter-than-expected inflation reports in the first quarter.
Overall, the positive inflation data and the potential for rate cuts have lifted investor sentiment on Wall Street. With the possibility of looser monetary policy on the horizon, investors are closely monitoring Fed announcements and economic indicators for insights into future market trends.
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