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The federal funds rate is sitting at its highest level in more than two decades, and a cut would goose investment prices and remove some of the downward pressure on the economy.
“There was a lot lying on today’s CPI print to prove that disinflation was simply delayed these last three months and not derailed,” according to Alexandra Wilson-Elizondo, co-chief investment officer of the multi-asset solutions business in Goldman Sachs Asset Management.
A separate report showed no growth in spending at US retailers in April from March. It was a weaker showing than the 0.4 per cent growth economists expected.
Slowing growth in retail sales could be seen as a positive for markets, because it could reduce the upward pressure on inflation. But a stalling out also raises worries about cracks forming in US consumer spending, which has been one of the main pillars keeping the economy out of a recession. Pressure has grown particularly high on lower-income households.
“Hopefully the consumer isn’t running out of steam, but with pandemic savings spent, rising delinquencies, slower wage growth, and now flat retail sales, a more abrupt slowing of the economy can’t be ruled out,” said Brian Jacobsen, chief economist at Annex Wealth Management.
That could threaten one of the main hopes that’s rallied the US stock market toward its records: The Federal Reserve can pull off the balancing act of slowing the economy enough through high interest rates to stamp out high inflation but not so much that it causes a bad recession.
A separate discouraging report released in the morning, meanwhile, said manufacturing in New York state is contracting more than expected.
On Wall Street, Petco Health + Wellness helped lead the market after soaring 27.9 per cent. It named Glenn Murphy, who is CEO of investment firm FIS Holdings, as its executive chairman.
On the losing end were GameStop and AMC Entertainment, as momentum reversed following their jaw-dropping starts to the week. GameStop fell 18.9 per cent, though it’s still up 126.5 per cent for the week so far.
AMC Entertainment sank 20 per cent after it said it will issue nearly 23.3 million shares of its stock to wipe out $US163.9 million in debt.
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All told, the S&P 500 rose 61.47 points to 5,308.15. The Dow added 349.89 to 39,908.00, and the Nasdaq jumped 231.21 to 16,742.39.
In the bond market, the yield on the 10-year Treasury eased to 4.34 per cent from 4.45 per cent late Tuesday. The two-year yield, which moves more closely with expectation for Fed action, sank to 4.72 per cent to from 4.82 per cent.
Traders are now forecasting a nearly 95 per cent probability that the Fed cuts its main interest rate at least once this year, according to data from CME Group. That’s up from just below 90 per cent a day before.
In stock markets abroad, Shanghai’s fell 0.8 per cent after China’s central bank left a key lending rate unchanged. Indexes were mixed elsewhere in Asia and modestly higher in Europe.
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