Stocks struggled to find solid footing after the latest US inflation reading underscored the bumpy path Federal Reserve officials face in achieving their 2% target.
Equities fluctuated after data showed the producer price index increased by the most in 11 months — while trailing estimates. The data came a day after a hotter-than-estimated report on consumer inflation spurred a slide in equities and bonds, prompting traders to dial back their bets on Fed rate cuts. Treasuries were mixed, with shorter maturities outperforming longer-dated ones.
“The inflation data are noisy, and the market reflects that reality,” said Jamie Cox at Harris Financial Group. “The last mile of the inflation fight is going to be the most difficult. The Fed will cut into the noise, but not until after June.”
Several categories in the PPI report that are used to inform the Fed’s preferred inflation measure — the personal consumption expenditures price gauge — such as health care and portfolio management, came in softer.
While the latest PPI reading was constructive, investors should be prepared for fewer rate cuts this year — one or two — and for a first potential move not until the July meeting, according to Larry Tentarelli at Blue Chip Daily Trend Report.
“Although we understand the relief with which this report will be received, there is nothing very encouraging contained within it — and the best that can be said is that there was ‘no new bad news’ either,” said Michael Shaoul at Marketfield Asset Management.
Fed Bank of New York President John Williams said the central bank has made “tremendous progress” toward better balance on its inflation and employment goals, but acknowledged policymakers are not yet done.
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