Inflation Outlook Lifts US Indices to Record Levels

Amid rising tensions regarding upcoming inflation data, U.S. stock markets experienced a remarkable surge on Wednesday. The release of the minutes from the latest Federal Reserve meeting fostered an optimistic sentiment among investors. All three major indices finished the trading day with gains. The Dow Jones Industrial Average climbed over 400 points, reaching a new record close. Similarly, the S&P 500 also hit a new high. Concerns about Alphabet, Google's parent company, seemed to leave market participants unfazed, as the Nasdaq Composite rose by 0.6%. The U.S. Department of Justice is considering breaking up the tech giant to address its monopoly in search engines. Meanwhile, bond market yields increased, with the yield on 10-year Treasury notes rising by three basis points to 4.071%. The Consumer Price Index report scheduled for Thursday is highly anticipated, serving as a crucial indicator for the Federal Reserve's next rate-setting meeting. The latest employment report from September raised expectations, and an unexpected rise in inflation could lead to volatility on Wall Street, according to Bank of America. Economists forecast a 0.1% monthly increase in consumer prices for September and a 2.3% year-over-year increase, indicating a slight decline compared to the August figures. According to the minutes of the last Fed meeting, the central bank remains calm in light of the current inflation level. It expects inflation to decrease to 2% by 2026, while economic risks are seen as skewed to the downside. Some members advocated for a 25 basis point rate cut during the last meeting. Oliver Allen, lead U.S. economist at Pantheon Macroeconomics, commented that the Fed remains too focused on past data and does not pay enough attention to the lagged effects of an economic slowdown. The Fed is expected to cut rates by 25 basis points at each of its next two meetings, bringing the target range for the Federal Funds Rate to 4.25%-4.5% by year-end. According to the CME FedWatch Tool, the probability of another major rate cut in 2024 is zero.