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“There are still embers of inflation here and there in the economy,” said Joe Davis, chief global economist at Vanguard.
For shoppers, this is painful because of the potential for higher prices in the store. For Wall Street, this raises concerns that the Fed will hold back from implementing the interest rate cuts that traders are eager for and betting on.
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The S&P 500 has already jumped more than 20 percent since Halloween, partly due to expectations that the Federal Reserve will cut its key interest rate, which is at its highest level in more than two decades. Such cuts would ease pressure on the economy and encourage investors to pay higher prices for stocks, bonds, cryptocurrencies and other investments.
But the Fed was waiting for more evidence to show that inflation was trending sustainably lower toward its 2 percent target. After an encouraging slowdown last year, the fear now is that inflation may remain stuck after inflation reports for January, February and March came in hotter than expected, along with data on the economy in general.
“Two data points don't make a trend, but maybe three do,” said Brian Jacobsen, chief economist at Annex Wealth Management.
“If we get another reading like this, the Fed's conversation will shift from when to cut to whether to raise rates.”
Prices for everything from bonds to gold fell immediately after the inflation data came out this morning.
The yield on the 10-year Treasury note jumped to 4.54 percent from 4.36 percent late Tuesday and is back to where it was in November. The two-year bond yield, which moves more based on expectations about the Fed's action, rose higher, rising to 4.97 percent from 4.74 percent.
Traders sharply cut their bets that the Federal Reserve may start cutting interest rates in June. They now see only a 17 percent chance of making that happen, down from nearly 74 percent a month ago, according to CME Group's FedWatch tool.
Perhaps most importantly, traders have shifted more bets toward the Fed cutting interest rates only twice over the course of this year. At the beginning of the year, they were expecting six or more cuts through 2024.
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Big US companies are lining up on the runway to report how much they've made in the first three months of the year, and Delta Air Lines helped kick off reporting season by delivering better-than-expected results.
The airline said it is seeing strong demand for flights around the world, and expects the strength to continue through the spring. But it also refrained from raising its full-year earnings forecast. Its shares rose as much as 4 percent during the morning before turning to a loss of 2.3 percent.
With AP
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