Dow Buckles Under Weak Inflation, Hastening Fed Rate Cut Band-Aid

Journalist:
June 12, 2019


By CCN Markets: The Dow and broader U.S. stock market headed for a soft landing Wednesday after another batch of disappointing inflation figures pointed to a slowing domestic economy.

Dow, S&P 500 Slide for Second Consecutive Day

All of Wall Street’s major indexes swung lower on Wednesday, continuing a disappointing end to the previous session and mirroring a slow morning for Dow futures. The Dow Jones Industrial Average dropped 46.67 points, or 0.18%, to 26,001.84.

Dow Jones Industrial Average struggles to hold 26,000 on Wednesday. | Source: Yahoo Finance.

The broad S&P 500 Index of large-cap stocks declined 0.21% to 2,879.72. Five of 11 primary sectors traded lower, with energy stocks declining sharply.

Meanwhile, the technology-focused Nasdaq Composite Index fell 0.37% to 7,793.71.

Tame Inflation and Monetary Policy Roil Markets

The slowdown in consumer inflation is raising the likelihood of an imminent rate cut. Markets are betting on a July rate cut from the Federal Reserve. | Source: Shutterstock.

U.S. consumer prices grew less than expected in May, bolstering the case for the Federal Reserve to lower interest rates in the coming months.

The consumer price index (CPI) edged up 0.1% in May and 1.8% annually, the Department of Labor reported Wednesday. Both figures were below forecasts.

So-called core inflation, which strips away volatile goods such as food and energy, rose 0.1% month-on-month and 2% annually. Once again, the figures were just shy of expectations.

If there’s a silver lining in the inflation numbers it’s that that Federal Reserve is more likely to lower interest rates in the near future. Although the Labor Department’s CPI measure isn’t closely followed by the central bank, it provides the latest evidence that price growth is falling below target.

The Federal Reserve uses the core personal consumption expenditure (PCE) index to target inflation at 2% annually. In other words, central bankers are keen on seeing the value of your dollar decline by 2% each year in support of macroeconomic goals.

Wall Street is betting big that the Federal Reserve will slash interest rates following the conclusion of its July 30-31 policy meeting. CME Group‘s Fed Fund futures prices imply a more than 76% chance of a rate cut next month. The figure was closer to 90% last week.

Click here for a real-time Dow Jones Industrial Average price chart.

This article was edited by Josiah Wilmoth.

Last modified (UTC): June 12, 2019 16:47

Sam Bourgi @hsbourgi

Financial Editor to CCN Markets, Sam Bourgi has spent the past nine years focused on economics, markets and cryptocurrencies. His work has been featured in and cited by some of the world's leading newscasts, including Barron's, CBOE and Forbes. Avid crypto watchers and those with a libertarian persuasion can follow him on twitter at @hsbourgi. Sam is based in Ontario, Canada and can be contacted at sam.bourgi@ccn.com