Some investors believe a slowdown in U.S. inflation last month may be paving the way for a market-friendly situation
Some investors believe a slowdown in U.S. inflation last month may be paving the way for a market-friendly “Goldilocks” scenario for asset prices, where the Federal Reserve is able to bring down consumer prices without badly damaging growth.
“Softer inflation and strong jobs market do support the Goldilocks scenario, which will certainly make the rate hike discussion heated at the heart of the FOMC ,” said Ipek Ozkardeskaya, a senior analyst at Swissquote Bank. Investors are now pricing in roughly a 90% chance that the central bank will raise its policy rate by 25 basis points to a range of 4.50% to 4.75% at that meeting, up from about a 75% chance priced in on Wednesday and the 35% chance expected a month ago, according to CME Group’s FedWatch Tool. The Fed hiked rates by three-quarters of a percentage point at four straight meetings starting in June 2022 before slowing to a half-percentage-point increase at its meeting last month.
By contrast, the S&P 500 moved an average of 2.7% in either direction over the prior seven CPI releases, compared with an average daily move of about 1.2% over the same period. The more than 3% rise in stocks month-to-date may have also contributed to Thursday’s muted reaction, said Charlie McElligott, equity derivatives strategist at Nomura.
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