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NEW YORK, April 12 (AP) – Stocks were higher on Wednesday, with Wall Street easing slightly after a report showed inflation was cooling faster than expected.
The S&P 500 was up 0.2% in early trade. The Dow Jones Industrial Average was up 133 points, or 0.4%, at 33,818 as of 9:50 a.m. ET, while the Nasdaq Composite was up 0.1%.
The main focus on Wall Street for more than a year has been high inflation and how much painful medicine the Fed will have to prescribe to curb it. A report Wednesday morning showed consumer prices were 5% higher last month than a year earlier.
That’s still well above the Fed’s comfort level for inflation, keeping financial markets in check. But that was better than the 5.2 percent economists expected, marking a sustained slowdown in inflation from its peak last summer.
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Traders are still largely betting that the Fed will raise short-term interest rates by another 25 percentage points at its next meeting, according to CME Group. But they pared back some bets on the likelihood that the Fed will keep rates on hold in May, something it hasn’t done in more than a year.
“There are every reason for the Fed to pause rate hikes and only a few reasons not to,” said Brian Jacobson, senior investment strategist at Allspring Global Investments.
Higher interest rates can weaken inflation, but only by directly slowing the entire economy. This increases the risk of a later recession while hurting the prices of stocks, bonds and other investments.
The Federal Reserve has raised interest rates at an alarming rate over the past year, enough to hurt areas of the economy and strain the banking system.
That has many investors and economists expecting at least a mild, brief recession later this year. If banks stop lending because of all the problems in their industry, it could further tighten constraints on the economy.
Bond markets are showing more nervousness about a potential recession, with traders betting the Federal Reserve will have to cut interest rates later this year to prop up the economy.
Yields fell further after Wednesday’s inflation report. The yield on the 10-year U.S. Treasury note fell to 3.39% from 3.43% late Tuesday. It helps set interest rates on mortgages and other important loans.
The two-year Treasury yield fell to 3.96% from 4.03%, more influenced by Fed expectations. Meanwhile, stocks remain more resilient than bond markets.
So far this year, it has risen in part on hopes that the Fed will perform the difficult balancing act of slowing the economy to curb inflation without causing a deep recession that dents corporate profits.
Later this week, companies will start telling investors how much profit they made in the first three months of the year.
Estimates were almost unanimously low, with analysts forecasting the worst drop in earnings per share since the 2020 pandemic devastated the economy. But many analysts also expect that to bottom out, with growth expected to resume later this year.
Checking Wall Street on Wednesday is the fact that inflation remains stubbornly high, even as it is slowing. Beneath the surface, inflation actually accelerated a little, ignoring food and energy costs.
This is known as “core inflation” and gives a better picture of where the trend is headed. Are some investors prepared for the “secularly higher” interest rates that the Fed has long warned about.
“The Fed’s call for 2 percent inflation is a distant dream and rates will have to remain somewhat restrained until we see a significant improvement in the core inflation trajectory,” said Gargi Chaudhuri, head of investment strategy for the Americas at iShares. (Associated Press)
(This is an unedited and auto-generated story from a Syndicated News feed, the content body may not have been modified or edited by LatestLY staff)
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