On Thursday, U.S. indices experienced a significant drop despite inflation data indicating an economic slowdown.
This scenario suggests possible interest rate cuts by the Federal Reserve towards the end of the year.
The S&P 500 and the Nasdaq retreated, closing at 5,595.00 and 20,250.00 points, respectively. Conversely, the Dow Jones showed a slight increase, closing at 39,770.00 points, highlighting mixed stock market performance.
Following the announcement of the Consumer Price Index (CPI), Treasury bond yields decreased, reflecting an increased probability of a rate cut in September, which reached 93% according to the CME’s FedWatch tool.
Despite this, the Federal Reserve is expected to keep rates unchanged at its next meeting, indicating prudence in short-term monetary decisions.
The June CPI report revealed a monthly decline of -0.1%, exceeding expectations of a 0.1% increase. On an annual basis, the rise was 3%, below the expected 3.1%. The core CPI, which excludes food and energy, showed a monthly increase of 0.1% and an annual increase of 3.3%, also below expectations. These data suggest a more pronounced deceleration in inflation than anticipated.
These figures reinforced expectations of rate cuts by the Fed, possibly in September. On Wednesday, July 10, 2024, Wall Street’s major indices reached new all-time highs following optimistic comments from Fed Chair Jerome Powell about a possible soft landing for the economy. However, several Fed officials have indicated the need for more evidence of a slowdown in inflation before considering rate cuts, introducing a note of caution to the outlook.
In conclusion, the recent decline in U.S. indices and the decrease in Treasury yields reflect a complex and slowing economic scenario. Despite signs of a possible interest rate cut towards the end of the year, the Federal Reserve remains cautious, waiting for more data confirming the slowdown in inflation before proceeding. Financial markets, meanwhile, continue to show volatility in response to mixed signals from the economy and future monetary policies.
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