Happy Wednesday! The S&P 500, Nasdaq Composite and Dow Jones Industrial Average all jumped today to close at record highs, fueled in part by data on inflation and retail sales that raised expectations that the Federal Reserve might cut interest rates in the not-too-distant future. "Markets really wanted these reports to be soft, and they got what they wanted," Brian Nick, senior investment strategist at the Macro Institute, told CNBC.
We’ve got more on the inflation report, an update on Congress and more. Here’s what you should know.
Inflation Eases in April, Lifting Hopes for a Soft Landing
Inflation took a bit of a breather in April, as the Consumer Price Index rose 3.4% on an annual basis, down a tenth of a point from the March reading, according to government data released Wednesday. On a monthly basis, prices rose 0.3%, down from the 0.4% pace recorded in March.
Housing and gasoline prices were the main drivers behind the index’s rise, responsible for about 70% of the overall result.
The core CPI index, a closely watched measure that excludes volatile food and fuel prices, saw a slightly larger dip, dropping two-tenths of a percentage point to 3.6% on an annual basis — the smallest increase in core CPI since early 2021.
What people are saying: Asserting that fighting inflation is his "top economic priority," President Joe Biden noted that core CPI recorded its smallest increase in three years. Biden said prices are still too high, though, and he vowed to address them through his plans to lower prescription drug and housing costs.
Former Obama administration economic adviser Jason Furman said the April report was "relatively dull" and would have little effect on policymakers on its own. "Inflation is still too high," he wrote on social media. "A tiny bit of easing but no surprise there."
The Washington Post’s Heather Long cited the positive parts of the report: "Food, cars and other goods are no longer rising in price. Monthly food inflation has been 0% in past few months," she wrote. On the other hand, "1) Rents still high 2) Auto insurance is crazy +22.6% in past yr and 3) Gas prices creeping up again."
RSM economist Tuan Nguyen said the overall picture is positive. "In our view, the economic fundamentals remain encouraging for further disinflation, even though the path to price stability has been bumpy," he wrote. "Rates are highly restrictive, continuing to soften overall demand, especially in housing and automobiles, two of the top categories that contributed to the sharp spike in inflation over the last three years."
Economist Erica Groshen of Cornell University agreed. "This is a very comforting report," she said, per The Wall Street Journal. "It is consistent with the view of a soft landing."
What comes next: The easing comes as a relief to analysts who were worried that larger-than-expected price increases in the first three months of 2024 might indicate that inflation was becoming entrenched and possibly reigniting. At the same time, the April CPI report is far from an all-clear in the war against excess price increases. Stephen Stanley, chief U.S. economist at Santander, told The New York Times that he saw the latest data as "a small step in the right direction," while Sarah House of Wells Fargo said "there’s still work to be done."
Federal Reserve officials will undoubtedly want to see more data before they conclude that the battle is conclusively going their way. Fed Chair Jerome Powell said earlier this week that the central bank needs to be "patient and let restrictive policy do its work" amid frustratingly sticky inflation data.
Still, as we mentioned above, the April inflation data gave investors hope that the Fed would cut rates at some point this year, a much-desired scenario that some had started to doubt. The CME FedWatch probability of a September rate cut jumped from about 65% yesterday to more than 75% today.
House Passes FAA Reauthorization, Sending It to Biden
The House today passed a major bill reauthorizing the Federal Aviation Administration for five years and providing $105 billion in funding for agency programs as well as $738 million for the National Transportation Safety Board.
The bill, which covers fiscal years 2024 through 2028, had cleared the Senate last week, so the House’s bipartisan 387-26 vote sends the legislation to President Joe Biden’s desk. Lawmakers were facing a Friday deadline, with the latest of four short-term extensions of FAA authorization due to expire then.
The bill aims to make air travel safer and provide stronger protections for passengers while also investing in infrastructure and aviation technology. As a reminder, the $105 billion in authorized appropriations include:
* $66.7 billion to fund safety programs and the hiring, training and retention of staff, including some 3,000 new air traffic controllers and technical engineers;
* $17.8 billion for FAA facilities and equipment;
* $19.35 billion for airport infrastructure improvement grants; and
* $1.59 billion for FAA research, engineering and development.
What’s next: After a somewhat turbulent path to reauthorization, passage of the bill means that Congress has cleared all must-pass legislation until the fall, when the government will again need to be funded. In the short term, that means election season is now in full swing and messaging bills on hot-button issues will dominate lawmakers’ agenda.
Numbers of the Day
$2 Billion: Secretary of State Antony Blinken announced Wednesday that the United States will provide another $2 billion in military aid to Ukraine. Blinken said at a joint press conference with Ukraine’s foreign minister that the aid would be used to buy weapons from the United States and other countries, but also to build up Ukraine’s defense industrial base to increase the country’s production capacity.
He said that the $60 billion in supplemental funding provided by Congress for Ukraine "is coming at a critical time" as Ukraine faces a renewed Russian onslaught. "We’re rushing ammunition, armored vehicles, missiles, air defenses – rushing them to get to the front lines to protect soldiers, to protect civilians," Blinken said.
107,543: The number of U.S. overdose deaths decreased in 2023 but still topped 100,000 for a third straight year, according to provisional data released by the Centers for Disease Control and Prevention.
"This progress over the last 12 months should make us want to reinvigorate our efforts knowing that our strategies are making a difference," Dr. Deb Houry, the CDC chief medical officer, said in a statement. But The Washington Post’s David Ovalle notes that experts say the numbers could rise in coming years and that much remains to be done because the death toll remains troublingly high.
Fiscal News Roundup
- US Inflation Eased Last Month in the First Slowdown of 2024 – Associated Press
- Inflation Eases for First Time in 2024. Will It Be Enough to Cut Rates? – Washington Post
- Congress Clears Major Aviation Policy Bill, After Months of Delays – Politico
- US to Send Additional $2 Billion in Ukraine Aid, Blinken Says – ABC News
- Senators Urge $32 Billion in Emergency Spending on AI After Finishing Yearlong Review – Associated Press
- U.S. Needs to Address Risks After Baltimore Bridge Crash, Officials Tell Congress – Washington Post
- Manchin, GOP Senators Move to Overturn Retirement Investment Planning Rule – The Hill
- Wegovy Could Bankrupt U.S. Health System, Sanders Says in New Report – The Hill
- Biden and Trump Agree to 2 Presidential Debates, in June and in September – Associated Press
- Retail Sales Were Flat in April, Falling Below Economists’ Expectations – MarketWatch
Views and Analysis
- States See Legalized Sports Betting as a Tax Windfall — but at What Cost? – Washington Post Editorial Board
- The New Cost for 2025 Tax Cut Extensions - $5 Trillion – Andrew Lautz, Bipartisan Policy Center
- Republicans’ Chances at Winning the Senate Just Skyrocketed – Leigh Ann Caldwell and Theodoric Meyer, Washington Post
- Think Corporate Greed Is the Leading Cause of Inflation? Think Again – Matt Egan, CNN
- Inflation, Misguided Economics, and the Fed – Robert Kuttner, American Prospect
- America Is Pulling Up the Drawbridge – Edward Luce, Financial Times
- Trump’s War on Government Will Take Public Health Back a Century – Abdullah Shihipar, New Republic
- Biden’s False Claim That Inflation Was 9 Percent When He Took Office – Glenn Kessler, Washington Post