Stocks close at RECORD high after inflation eased slightly in April - sparking hopes of interest rate cuts this year

Major stock indices closed at a record-high Wednesday evening after data showed the rate of annual inflation eased slightly to 3.4 percent in April. 

The S&P 500 closed at a record-high of 5,300 while the Dow Jones Industrial Average and Nasdaq also closed at highs of 38,908 and 16,742 respectively.

Investors responded positively to the news that inflation cooled slightly from 3.5 percent in March - sparking hope the Federal Reserve will begin cutting interest rates in September.

So-called 'core prices,' which exclude volatile food and energy costs, climbed 3.6 percent in the year to April - the lowest increase since the same month in 2021. 

The figures, released by the Bureau of Labor Statistics Tuesday morning, offer some relief after three consecutive CPI releases suggested price pressures are continuing to strain the US economy. 

Investors responded positively to the news that inflation cooled slightly from 3.5 percent in March - sparking hope the Federal Reserve will begin cutting interest rates in September.

Fed Chair Jerome Powell said during a discussion in Amsterdam yesterday that officials did not expect bringing down inflation to be a 'smooth road'

Inflation must cool in order for the Fed to cut interest rates, which are currently at a 23-year-high of between 5.25 and 5.5 percent.

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Higher rates are intended to reign in consumer spending by lowering demand thereby causing prices to fall.

The Fed has a clear target of bringing the annual rate of inflation to 2 percent.

At the start of the year, economists had predicted officials would slash rates up to four times.

But consistently hotter-than-expected inflation readings have thrown that plan into doubt.

Prices are being pushed up by rental costs which have in turn risen due to soaring home values.  Statisticians do not use house prices to calculate inflation because a home is partially an investment - instead, they rely on rents to reflect the rising value of properties.

Fed Chair Jerome Powell said during a discussion in Amsterdam yesterday: 'We did not expect this to be a smooth road.'

He added officials need to 'be patient and let restrictive policy do its work.'

Some 96.9 percent of investors now anticipate the Fed will keep rates unchanged during their next meeting on June 12, according to the CME FedWatch Tool.

But around three-quarters expect rates will be cut by the body's September 18 meeting - if not earlier. 

Hopes were also bolstered by a separate report which showed retail spending in April fell 0.4 percent below economists' expectations.

Gary Pzegeo, head of fixed income at CIBC Private Wealth US, wrote in a note to clients: 'Taken [together with retail sales] this supports a Fed rate cut in the fall.

'Markets are discounting a cut in September and have moved to price in a second cut by December.'

The Federal Reserve has voted to hold interest rates steady at their current 23-year-high, officials announced today

Higher rates are intended to reign in consumer spending by lowering demand thereby bringing prices back into check 

The Fed's benchmark funds rate has a knock-on effect on the interest offered to households on their credit cards, mortgages and personal loans. 

The average rate on a 30-year fixed-rate mortgage is hovering at 7.09 percent, according to Government-backed lender Freddie Mac.

Meanwhile the average interest on a credit card is 20.66 percent, according to figures from Bankrate.

Credit cards are one of the few borrowing vehicles to offer a variable rate - meaning they change in-line with the Fed's funds rate.

The cost of auto-lending has also shot up. The average rate on new car loans in March was 7.4 percent, data from Edmunds.com shows.