April's Consumer Price Index (CPI) showed movement in a positive direction after a concerning first quarter, with both headline and core CPI rising by 0.3% month-over-month.
Despite not being a significant beat on expectations, the latest CPI figures were enough to buoy stock markets and propel them higher.
That means the possibility of a rate cut remains on the table, but well towards the end of the year, according to most analysts.
September would be the earliest possibility, according to the Street consensus.
While the CPI report is encouraging, it is just one month’s data – which is not substantial enough to prompt immediate action from the Federal Reserve.
Even so, Wall Street is breathing a sigh of relief, according to Jay Woods, chief global strategist at Freedom Capital Markets (NASDAQ:FRHC).
‘We finally broke the three-month streak of CPI numbers that came in hotter than expected,” Woods told Proactive.
“As we saw with reaction to the PPI yesterday, the market is continually looking for silver linings. The silver lining yesterday despite a hotter-than-expected number was a downward revision to the prior month. The initial sell-off turned positive as forces turned to today’s CPI.”
Despite some concerns, such as the ongoing focus on finding positive aspects even in less favorable data, the market is reaching new highs.
The recent CPI figures “lit a fire under equities,” according to Chris Beauchamp, chief market analyst at online trading platform IG.
“Combined with Powell’s reiteration yesterday that the bar to rate hikes remains very high, it looks like stocks have a clear path to make another run at record highs,” Beauchamp commented.
The possibility of a rate cut, though not immediate, is becoming more realistic, contributing to market optimism.
Bank of America maintains its prediction for the first interest rate cut to be in December, as core Personal Consumption Expenditure (PCE) inflation is expected to remain above the Fed's 2% target.
A September cut would require significantly slower inflation data or weakening labor market indicators, the bank noted.
But the upward trend in inflation data has stopped, Freedom’s Woods highlighted. “By no means are we in the clear, but this is a big step in the right direction for the Fed to eventually cut rates,” he said.