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Consumer Price Index report for June released - here's what it means for your 401(k)
Wednesday has been a big day for Americans who want to buy a home or keep an eye on their 401(k)s - as a rare double header of economic news landed.
An update to the consumer price index (CPI) in the morning showed inflation is cooling. Annual CPI for May was 3.3 percent, lower than the rate for April.
While prices are still rising, they are doing so at a much lower rate than expected - which is a boost for the economy. Most experts thought CPI would be 3.5 per cent.
Cheaper gas and fallling car insurance - after the biggest price rises since the 1970s - helped.
Lower inflation figures caused stocks to spike. The S&P 500 and the tech-heavy Nasdaq 100 both hit record highs. Other stocks rose too - boosting retirement accounts.
Then at 2pm the Federal Reserve revealed - as expected - that it had kept interest rates unchanged at between 5.25 and 5.50 percent.
The S&P 500 shot right up as the inflation data dropped at 8.30am ET - and then stayed up all day. It clsoed above 5,400 for the first time.
CPI - the main measure of inflation in the US - cooled to 3.3% in May on a year ago. It had been 3.4 % in May
Cooling inflation means more than just prices falling for Americans.
It gives the green light to Fed officials to consider lowering interest rates - and such a move cuts borrowing costs for consumers and businesses.
The means mortgage rates falling, and a cut in credit card rates and the cost of loans for autos. That frees up money for Americans to spend, which is good for busineses
Lower rates are good for businesses in another way too. They make it cheaper for them to borrow and grow their business.
All of the above means Wall Street likes lower rates - and that means stock prices, and 401(K)s, go up.
After the inflation figures came out at 8.30am, markets boosted expectations for a September start to rate cuts.
They priced in an over 70 percent chance, according to the CME's FedWatch tool, from 54 percent prior to the report.
But the tone of what Jerome Powell said at 2.30pm gave further clues as to how soon the rate will be cut.
Powell welcomed the inflation data but added that the US central bank needs to see more 'good inflation readings' before it gains sufficient confidence to consider cutting interest rates.
That means the US might only get one rate cut this year. The stock market was unfazed and the S&P 500 finished above 5,400 for the first time.
Sam Stovall, chief investment strategist at CFRA Research, said: 'It certainly seems as if the trend in inflation continues to be our friend.'
It was the seventh consecutive time the Fed has kept rates at that level.
Inflation must cool in order for the Fed to cut interest rates. Higher rates curb consumer spending - and lower demand for goods causes prices to fall.
Wall Street has been steady ahead of busy week of inflation reports and the Federal Reserve's latest interest rate policy decision
The Fed wants the annual rate of inflation down to 2 percent.
Bret Kenwell, US investment analyst at eToro, said: 'With a lower-than-expected CPI report this morning, investors are waiting to see how the Fed will impact markets later this afternoon.
'The cool inflation numbers should boost investor confidence for a Fed rate cut in the second half of 2024, but will the Fed throw gasoline or cold water on the fire when it comes to rate cuts?'