The Fed didn't give investors much time to celebrate March's lower-than-expected inflation reading.
The CPI should have been the news of the day. It said all the right things. The annual increase in headline inflation was the lowest since June 2021. Food prices dropped 0.3%, the first time they fell since September 2020. Housing costs rose, but at the slowest pace since November last year.
Markets rose after the CPI was released — why wouldn't they?
Then minutes from the FOMC's meeting came out and changed investors' day. Fear of recession replaced optimism around inflation. By the end of the trading session, all indexes registered losses. The S&P 500 fell 0.41%, the Dow Jones Industrial Average snapped its four-day winning streak to lose 0.11%, and the Nasdaq Composite slid 0.85%.
Perhaps investors were too optimistic in the first place. Richmond Fed President Thomas Barkin said we've moved past the eye-watering inflation of last June, but he told CNBC that "we still have a ways to go." That would suggest inflation — and interest rate hikes — aren't done yet.
Echoing Barkin, BlackRock CEO Larry Fink said he doesn't believe we can "get below 4% inflation
any time soon, which in my mind will probably lead to more tightening by the Federal Reserve."
Investors will keep their eyes on the producer price index coming out today, and earnings reports from big U.S. banks Friday, to gauge whether the economy is truly in such dire straits.
