US stocks soared on Wednesday after a positive reading on inflation was released, showing that consumer prices increased less than expected in May. This news came just hours before a highly anticipated Federal Reserve meeting, where the path of interest rates was to be discussed. The S&P 500, Nasdaq Composite, and Dow Jones Industrial Average all recorded gains, with the market reacting positively to the inflation data, marking a 27th record close for the year.
The Consumer Price Index (CPI) remained flat over the previous month and rose 3.3% over the prior year in May, signaling a deceleration in inflation compared to the previous month. Both measures surpassed economist expectations, which shifted market expectations for Fed rate cuts, with markets now pricing in a higher chance of rate cuts by September. This news led to a significant drop in the 10-year Treasury yield, driving interest rate-sensitive areas of the market, like the Russell 2000 index, to rally over 3.1%.
As investors eagerly awaited the Fed’s decision following the positive inflation data, Treasury yields fell, prompting a surge in the stock market. With the likelihood of rate cuts increasing, investors are closely monitoring the Fed’s economic projections and any potential rate adjustments. The positive CPI reading and market reaction signal a shift in sentiment on interest rate moves, setting the stage for potential market movements in the coming months.