Financial markets are clinging onto hopes of a soft landing after the world’s most powerful central banker hailed a fall in US inflation.
Under a soft landing, central bankers tame inflation and eventually cut interest rates while avoiding a recession. Sticky price pressures in the US have made this scenario seem less likely, as we’ve moved through 2024.
But investors are cheered by yesterday’s data showing that US consumer price inflation weakened to 3.3% in May, along with a fall in underlying inflation.
Federal Reserve chair Jerome Powell bolstered that optimism, telling reporters last night that it was “certainly a better inflation report than almost anybody expected.”
Powell was speaking after the Fed left US interest rates on hold, at a two-decade high.
And its latest dot plots showed that Fed officials now expect just one interest rate cut this year, down from three forecast in March. They also expect inflation to be more stubborn this year than they thought in the spring.
But Powell also hinted that the Fed is ready to cut rates if inflation falls quickly, or if the economy weakened, saying: “If the labour market were to weaken unexpectedly or inflation were to fall more quickly than anticipated, we are prepared to respond.”
This lifted stocks on Wall Street, where the S&P 500 and the Nasdaq Composite closed at record highs for a third straight session.
Traders are encouraged that the Fed doesn’t see a big slowdown on the horizon, and sanguine that this may mean fewer rate cuts than hoped this year. After all, the Fed now sees an extra rate cut in 2025.
So while the landing may be delayed, it may not be too bumpy.
Analysts at ING say the Fed wants to see three things: more evidence of inflation pressures easing, more evidence of labour market slack, and softening consumer spending.
They add: "If we get all three of these, we believe the Fed will indeed seek to move monetary policy from “restrictive” to 'slightly less restrictive' with 25bp rate cuts at the September, November and December FOMC meetings."
Today is a red letter day for Tesla, which is asking its shareholders to approve a $56bn (£44bn) compensation package for CEO Elon Musk.
The package is up for approval, again, after being thrown out by a Delaware judge earlier this year – which has prompted the electric car manufacturer to also seek investor approval to shift its legal base to Texas.
Tesla has been urging shareholders to back the package – the largest ever granted to an executive at a US-listed company – with chair Robyn Denholm warning that Musk could step back if it was blocked.
Despite that plea, some major shareholders are opposing the package, including Norges Bank Investment Management, and the California State Teachers’ Retirement System (CalSTRS). And major proxy firms Glass Lewis and Institutional Shareholder Services (ISS) had urged shareholders to reject the pay package.
Musk, though, has declared this morning that shareholders are voting to approve the package, and the move to Texas, by “wide margins”.
Rolling out the red heart emoji, he posted: “Thanks for your support!!”
The AGM starts at 9.30pm UK time tonight. Reuters points out that shareholders are allowed to change their vote up to the start of the annual meeting.
The pay package was first agreed by Tesla’s board, and backed by shareholders, in 2018. For Musk to qualify for the money, Tesla had to hit various revenue, profit and share price targets, which were met.
But back in January, Delaware judge Kathaleen McCormick ruled in favour of a Tesla shareholder who argued that the company’s board inappropriately set the pay package. The judge agreed Musk’s pay package was unnecessary in keeping Musk dedicated to Tesla, an argument that company officers made during the trial.
The agenda
• 9.30pm BST: Tesla AGM, where shareholders will vote on Elon Musk’s$56bn pay deal
• 1.30pm BST: PPI index of US producer prices
• 1.30pm BST: US weekly initial jobless claims
• 2pm BST: Russia’s trade balance for April
We’ll be tracking all the main events throughout the day ... |
Obsessing over the inflation rate misses one key point: the economy is more than just how fast prices are rising