This week the Labor Department released April data for producer and consumer prices.
The headline numbers were in line with expectations, with PPI rising 2.2 percent and CPI rising 3.4 percent year over year.
This is a small step in the right direction for the Fed following three straight months of above-expected inflation. Interest rate futures now price in two rate cuts by the end of 2024. Earlier forecasts had projected as many as five rate cuts this year.
Equities are rallying on the news—the tech-heavy NASDAQ closed at an all-time high on Tuesday and continued to climb in early trading Wednesday morning, while other interest rate-sensitive sectors like Real Estate and Utilities are leading markets higher.
The Treasury market reacted with yields falling 5-10 basis points across the curve.
Despite this enthusiasm from investors, the data show that consumers may be pulling back on discretionary spending, which we will be watching closely in the coming months.
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