Wall Street Floats Higher Ahead of Fed, Inflation Data

A halt or break in the rises would give the economy and financial markets some breathing space. The Fed has already pulled rates to their highest level since 2007 in hopes of curbing inflation, and the hikes have contributed to high-profile US bank failures and months of manufacturing contraction.

This week will also see the latest updates on inflation across the economy. On Tuesday, economists expect a report to show consumer prices were 4.1% higher in May than a year earlier. That is well above the Fed’s target of 2% inflation, but it would be below April’s 4.9% inflation and a peak of more than 9% last June.

Since prices were already much higher a year ago thanks to the worst inflation in 40 years, further increases in the coming months do not seem so dramatic. According to Jonathan Golub, chief strategist of US equities at Credit Suisse, inflation could fall to 3.2% in June and the next two months could see one of the largest inflation declines in a two-month period in the past 70 years.

But much of that easing would simply be due to high prices already rising, and Wall Street traders were still bracing for the Fed to resume rate hikes in July. The question is how far it goes beyond that.

The Fed is in a tight position, as interest rate hikes would put more strain on the US banking system. It is still absorbing all the interest rate hikes of the past, which have led some customers to gobble up their bank deposits as they flock to higher-yielding money market funds. Higher rates have also pushed down the value of bonds and other investments banks made when interest rates were low.

While incoming data points to resilience in activity and persistent inflation, the Fed appears to want more time to monitor policy backlogs and regional banking stress, Michael Gapen and other economists wrote in a BofA Global Research report.

They view a June pause by the Fed as a close call. Recent surprise hikes by central banks in Canada and Australia show that a hike is still possible, but Gapen said the Fed usually doesn’t raise rates when the widespread assumption on Wall Street is that rates are being held. That could change if Tuesday’s inflation report comes out hotter than expected.

In addition to the Federal Reserve, central banks in Europe and Japan are also meeting this week to discuss interest rates.

In the bond market, the yield on the 10-year Treasury rose to 3.77% from 3.74% at the end of Friday. It helps set rates for mortgages and other important loans.

The two-year Treasury yield, which moves more than expected for the Fed, fell from 4.60% to 4.58.

In foreign stock markets, European indices were slightly higher after Switzerland’s UBS said it had completed its acquisition of embattled rival Credit Suisse in a government-sponsored bailout that combined the country’s two largest banks to boost the country’s reputation. as a global financial center and choke the market. unrest.

In Asia, equity indices were mixed.

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AP Business Writers Matt Ott and Elaine Kurtenbach contributed.