The Federal Reserve is expected to raise interest rates at its July meeting, according to market estimates
The US stock market saw a notable rise earlier in the day, as traders welcomed the release of new data indicating that inflation had risen less than expected, as compared to the previous month.
The Dow Jones Industrial Average (INDEXDJX: .DJI) reportedly rose 282 points, or 0.8%, showing strong market momentum. Meanwhile, the S&P 500 Index (INDEXSP: .INX) experienced a rise of 0.7%, adding 31 points to 4,470.32, a figure that represents its new maximum of 2023 and its highest level since April 2022.
Known for its high-tech composition, the Nasdaq Composite (INDEXNASDAQ: .IXIC) outperformed its peers with a notable 1.1% gain, adding to the overall positive market outlook.
Positive Outlook Driven by Inflation Data
The market revival can be largely attributed to released inflation data that revealed a milder-than-expected price increase. This positive result appears to be allaying concerns about inflationary pressures and rejuvenating investor confidence in the US stock market.
As revealed in the report, the most recent June Consumer Price Index (CPI) rose up 3% year-over-year, slightly below economists’ expectations for a 3.1% rise. Also, on a monthly basis, the index rose a modest 0.2%, below forecast.
In addition, investors were encouraged by the fact that core inflation, which excludes volatile food and energy prices, also rose less than expected. These figures suggest a more subdued inflationary environment than initially anticipated, offering relief to both consumers and investors.
Following the release of the CPI data for June, attention is now focused on the upcoming announcement of the Producer Price Index (PPI). As a well-watched indicator of inflation, the PPI provides valuable information about price movements at the wholesale level.
With rising concerns about inflationary pressures, market participants are eagerly awaiting the release of the June PPI figures, which are due to be released on Thursday. As the economy progresses, monitoring inflationary trends will continue to be crucial in assessing the economic recovery and financial markets.
US Stock Market Prices on a Possible Interest Rate Hike
The Federal Reserve is expected to raise interest rates at its July meeting, according to market estimates. The US stock market is pricing in a 92% chance of a rate hike, according to CME’s FedWatch tool.
The anticipation surrounding the Fed’s decision adds to market volatility, as investors scrutinize economic data for clues about the central bank’s future course of action. While market participants eagerly await the release of the PPI data, the impact on interest rate expectations and investor sentiment remains uncertain.
Despite the fact that the US economy showed a general increase in its activity since the end of May, the Fed warns that a period of deceleration is coming, according to the institution commented in the publication of the Beige Book.
“General economic activity has increased slightly since late May,” the Fed announced Wednesday in the report, released two weeks before each policy-setting Federal Open Market Committee meeting. “Economic expectations for the coming months generally continued to be for slower growth.”
In addition, most Fed top officials expect interest rates to rise this year to cope with a slower-than-expected cooling off of price pressures and a stubbornly strong labor market.
The interplay between inflationary pressures, the Federal Reserve’s decision-making process, and market reactions will continue to shape the trajectory of stocks. However, investors should closely monitor economic indicators, central bank communications, and market sentiment to navigate potential market volatility and adjust their investment strategies accordingly.
By Marina Meza
