Soft Consumer Prices Send Stocks Soaring Ahead of Today’s Fed Decision

US index futures have spiked upward in the last few minutes going from flat to up 0.75%-1.0%. US consumer prices were slightly better than expected (3.3% vs street 3.4%) igniting speculation that the Fed could take a more dovish stance than previously thought. Treasury yields are also dropping with the US 10 year falling from above 4.40% to below 4.30% in a matter of minutes.

This afternoon at 2:00 pm EDT, the Fed announces its latest interest rate decision. The pattern around the meetings dating back to the beginning of November has been for the US central bank to hold rates steady, for Chair Powell to put out some enough dovish hints at the press conference to prop up the stock market rally, and then for most officials including Powell to then spend the next six weeks walking back speculation on interest rate cuts.

Earlier this year, investors had thought that the Fed could start cutting rates this month like the Bank of Canada and the European Central Bank did last week. Currently it appears that the Fed may remain on hold this time with investors looking for hints on a potential rate cut in July or September. The Dot Plot of Fed Funds forecasts may be most closely scrutinized. Due to its proximity to the November election date, the late October meeting is off the table for any action from the Fed leaving July, September and December for potential rate cuts. The last Dot Plot in March had the largest group of members still forecasting 3 rate cuts for this year so something may need to give here. 

This news has also sparked a selloff in the US Dollar, which is down 0.4%-0.7% against the Euro, Pound, Loonie and Gold. Commodities are also in rally mode this morning with Copper up 1.1%, Silver up 2.6%, and US Crude Oil up 1.5%.

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