Today's consumer price index data for April came in below estimates, even as Trump tariffs ramped up. The inflation pictures is a bit less crucial for markets than it would have been if not for the U.S.-China trade deal announced on Monday. With recession fears waning, investors are no longer counting on Federal Reserve rate cuts to save the day. S&P 500 futures, after surging to start the week, edged higher after the data was released.
Still, elevated inflation remains a concern. As investors get more comfortable with the expected level of Trump tariffs, they're starting to warily eye the rise in long-term Treasury yields amid a better growth outlook and the potential for a deficit-raising Republican tax bill. Higher inflation would compound that issue.
9:32 a.m. ET
S&P 500 Rises Slightly Higher After CPI
The S&P 500 rose 0.3% shortly after the open, while the Dow Jones was 0.3% lower, weighed down by UnitedHealth Group. The Nasdaq climbed 0.6%.
The 10-year Treasury yield edged up one basis point to 4.46%.
9:29 a.m. ET
Trump Tariffs Raised These Prices: Economist
"This report brings the first clear evidence of upward pressure on goods prices from the tariffs, which started with a 10% rate on all imports from China in February, rising to 20% in March, before soaring to 145% in April," wrote Samuel Tombs, chief U.S. economist at Pantheon Macroeconomics.
Tombs noted that prices for household furnishings and appliances leaped, with major appliance prices rising 1.3% and furniture and bedding 1.5%. Audio equipment prices rocketed 8.8% in the largest-ever monthly increase recorded.
Tombs added that the U.S.-China trade deal doesn't lower his 3.2% forecast for the Fed's primary inflation rate, the core PCE price index, in 2025. That's because he figured that most imports from China would have been rerouted through other countries if the 145% tariff rate had stayed in place.
9:06 a.m. ET
Reaction To CPI Data
"Tariffs are still present and they are not going away anytime soon," wrote Skyler Weinand, chief investment officer at Dallas-based Regan Capital. Those tariffs, will "creep into consumer prices and eventually interest rates."
Weinand added: "The market has reduced the prognosis for Fed cuts from four to two in 2025 in quick order. Outside of recession occurring, we don't see the Fed cutting interest rates at all this year."
8:57 a.m. ET
Fed Rate-Cut Odds Updated
After the lower-than-expected CPI inflation data, markets are pricing in just 39% odds that the Fed will resume cutting rates by the July 30 meeting, unchanged from prior to the report.
Likewise, odds that the Fed will cut more than 50 basis points this year held near 40%.
8:50 a.m. ET
Wall Street Shrugs Over Mild CPI
Despite the undershoot, S&P 500 futures continue to drift near unchanged. That may be partly because of the details. Wholesale used car prices had pointed higher, so economists may not trust the staying power of lower or even flat retail prices. New car prices also are expected to head higher amid Trump tariffs.
8:48 a.m. ET
S&P 500 Futures Flat
S&P 500 futures, initially up slightly, have now turned flat. Some of that reflects UnitedHealth Group, which warned on costs for the second time in a month and said its CEO is leaving. That weighed on Dow Jones futures, while also curbing the S&P 500.
8:40 a.m. ET
CPI Details
Core goods prices rose a tame 0.1%, while services prices rose 0.3%. Economists had expected a rise in used car prices, but the data showed a 0.5% decline.
New car prices were flat, while apparel prices fell 0.2%.
Services inflation was held down by transportation services, which edged up 0.1%. Airline fares fell 2.8%.
Owner's equivalent rent, which had been slackening, rose a strong 0.4%. That was offset by a 0.2% dip in hotel and motel room rates.
8:33 a.m. ET
CPI Data For April
Both headline inflation and the core CPI rose 0.2% on the month, below expectations. Headline inflation dipped to 2.3%, while the core CPI stayed at 2.8%.
S&P 500 futures rose 0.2%.
CPI Expectations
Economists expect a 0.3% monthly rise in the overall CPI and core consumer prices, excluding food and energy categories. Headline consumer price inflation is expected to hold at 2.4%, while the core CPI is forecast to remain at 2.8%, according to the Econoday consensus.
Today's CPI data and Thursday's producer price index data will shape expectations for the Fed's primary inflation rate, the core PCE price index, released late in the month.
Fed Rate-Cut Outlook
Ahead of the CPI data, markets were pricing in negligible 8% odds of a rate cut at the June 18 Fed meeting. Odds rise to 39% for a July 30 rate cut, but that's down sharply from 78% odds a week ago.
For the full year, markets now see 78% odds of at least 50 basis points in Fed rate cuts and 41% odds of 75 basis points in cuts.
S&P 500
S&P 500 futures were little changed ahead of the CPI report. On Monday, the S&P 500 surged 3.3% on the U.S.-China trade deal.
Be sure to read IBD's The Big Picture column after each trading day to get the latest on the prevailing stock market trend and what it means for your trading decisions.
