Alert – Consumer Price Index report for June released – here’s what it means for your 401(k)

Wednesday is a big day for Americans who want to buy a home or keep a keen eye on their 401(k)s – as a rare double header of economic news lands.

Fresh inflation data in the consumer price index (CPI) landed at 8.30am – then the Federal Reserve revealed at 2pm it had kept rates unchanged. 

But Jerome Powell, its chairman, will speak at 2.30am – which should give clues on when the Fed will cut them.

The month-on-month CPI rate stayed the same – and was lower than the 0.1 percent increase that Wall Street had expected. 

Compared to a year ago, inflation for May cooled to 3.3 percent – meaning prices rose by that amount across the board. But that figure was also much lower than expected. Most economists thought it would be 3.5 per cent. 

Cheaper gas and fallling car insurance – after the biggest price rises since the 1970s – helped.

These lower reads casused stock futures to spike, and also sent bonds yields – a proxy for interest rates – down too. 

S&P 500 and the tech-heavy Nasdaq 100 both hit record highs. Other stocks rose too – boosting retirement accounts.

Cooling inflation means more than just prices falling for Americans. It gives the green light to Fed officials to consider lowering interest rates – which cut borrowing costs for consumers and businesses.

Of course, it would mean mortgage rates falling, and a cut in credit card rates and the cost of loans for autos. That frees up money for Americans to spend, which is good for busineses

Lower rates are good for businesses in another way too. They make it cheaper for them to borrow and grow their business.

The S&P 500 shot right up as the inflation data dropped at 8.30am ET – and then was still rising after 10.15pm 

CPI – the main measure of inflation in the US – cooled to 3.3% in May on a year ago. It had been 3.4 % in May

All of the above means Wall Street likes lower rates – and that means stock prices, and 401(K)s, go up.

After the inflation figures came out at 8.30am, markets boosted expectations for a September start to rate cuts. 

They priced in an over 70 percent chance, according to the CME’s FedWatch tool, from 54 percent prior to the report.

The Fed’s policy announcement is due at 2pm ET.  Experts say it is as good as certain that they will keep rates as they are – at a 23-year-high of between 5.25 and 5.5 percent. 

But the tone of what Jermoe Powell says at 2.30pm will give clues as to how soon the rate will be cut. Investors looks for guidance. 

It is thought that he will comment on the positive inflation data. 

Sam Stovall, chief investment strategist at CFRA Research, said: ‘It certainly seems as if the trend in inflation continues to be our friend/

‘It is working its way lower and taking Wall Street by surprise, causing futures to jump while the yield on the 10-year note slumped. 

‘So, that is going to end up working in favor of the Fed.’

 It will be the seventh consecutive time the Fed has kept rates at that level.

Inflation must cool in order for the Fed to cut interest rates. Higher rates curb consumer spending – and lower demand for goods causes prices to fall.

Wall Street has been steady ahead of busy week of inflation reports and the Federal Reserve’s latest interest rate policy decision

The Fed wants the annual rate of inflation down to 2 percent.

Bret Kenwell, US Investment Analyst at eToro, said: ‘With a lower-than-expected CPI report this morning, investors are waiting to see how the Fed will impact markets later this afternoon. 

‘The cool inflation numbers should boost investor confidence for a Fed rate cut in the second half of 2024, but will the Fed throw gasoline or cold water on the fire when it comes to rate cuts?’