Consumer Price Index report for June released – here’s what it means for your 401(k)
Wednesday is a big day for Americans looking to buy a home or keep a close eye on their 401(k)s — in a rare doubleheader of economic news.
New inflation data in the consumer price index will arrive at 8:30 a.m. – after which the Federal Reserve will reveal how it plans to respond in the afternoon.
The month-on-month CPI rate was unchanged – lower than the 0.1 percent increase that Wall Street had expected.
Compared to a year ago, inflation cooled to 3.3 percent in May, meaning prices rose by that amount across the board. But that figure was also lower than expected. Most economists thought this would be 3.5 percent. Cheaper gas helped.
These lower numbers caused stock futures to spike, and also caused bond yields – a benchmark for interest rates – to fall.
Futures on the S&P 500 are up 0.8 percent, while the tech-heavy Nasdaq 100 is up 1 percent.
Cooling inflation means more than just falling prices for Americans. It gives Fed officials the green light to consider cutting rates, lowering borrowing costs for consumers and businesses.
Of course, this would mean mortgage rates falling, and credit card rates and car loan costs falling. That frees up money for Americans to spend, which is good for businesses
Lower rates are also good for businesses in another way. They make it cheaper for them to borrow and grow their business.
The CPI – the main measure of inflation in the US – fell to 3.3% in May from a year ago. In May this was 3.4%
Wall Street remained steady ahead of the busy week of inflation reports and the Federal Reserve’s latest interest rate policy decision
All of the above means Wall Street likes lower interest rates – and that means stock prices and 401(K)s – go up
The Consumer Price Index report for May is due at 8:30 AM ET, while the Fed’s policy announcement is due at 2:00 PM ET.
The Fed is expected to keep interest rates where they are: at a 23-year high, between 5.25 and 5.5 percent.
But the tone of what Jermoe Powell says at 2:30 PM will provide clues as to how quickly rates will be cut. Investors are looking for guidance.
It will be the seventh time in a row that the Fed has kept interest rates at that level.
Inflation must cool before the Fed can cut rates. Higher interest rates limit consumer spending, and lower demand for goods causes prices to fall.
The Fed wants to reduce annual inflation to 2 percent.