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Stocks hit fresh all-time highs as the Federal Reserve did little to shake Wall Street's confidence that interest rates will drop at least twice in 2024 — even though the US central bank's dot plot suggested otherwise. Instead, Wall Street danced to its own beat, ignoring the Fed's cautious tone and betting on future rate cuts.

In the data-dependent world of financial markets, the stock market's bull run got another boost after a much cooler inflation reading, which gave investors a much-needed hallelujah moment. According to closely watched data released just before the June FOMC meeting, consumer price growth in the US last month was cooler than expected.

In fact, the headline gauge didn't budge in May from April. Core prices, meanwhile, rose by 0.2% (rounded), marking the slowest month-over-month pace of 2024. The unrounded figure was 0.163%, the slowest since August 2021, and if maintained, consistent with a return to the Fed's target.

On a year-over-year basis, headline price growth clocked in at 3.3%, while the core gauge increased by 3.4%, both coming in below estimates. This cooler-than-expected data had investors cheering and extended the stock market rally.

The release should be music to the ears of the Fed board. Wednesday's update marked the first positive CPI report of 2024 and one of the best in years. Its timing—just five and a half hours before the new dot plot release—was exceptionally advantageous for investors, considering the Fed's recent hawkish stance. When you add the soft data string leading up to the May jobs report, the NFP and AHE figures now look like outliers, especially with the household survey showing the second-largest drop since the pandemic began.

The new dot plot could have easily signalled two rate cuts for 2024. Instead, the Committee leaned narrowly hawkish, projecting only a reduction this year but four cuts in 2025. This cautious approach keeps investors on their toes, eagerly speculating what's next in the Fed's playbook.

It's important to remember that the Fed dot plot is conditional and just as data-dependent as market pricing. Future rate moves will hinge on how the economic data unfolds, keeping policymakers and investors data-dependent.

But it's a great start to the summer, and if these trends solidify, we could be talking about "insurance" rate cuts come September. So, keep your sunscreen handy and your eye on the data—it will be an interesting few months!

In a tale as old as the recent Fed meetings themselves, Wednesday's gathering saw rates stuck in the same rut for the seventh time in a row. However, the policymaker's crystal ball seemed to have a crack in it as they forecasted just one rate cut for 2024—a prediction that swiftly aged like milk left out in the sun after a surprisingly chill CPI report.

It was a scene fit for the trading pits: the Fed's median 2024 marker was due for an upgrade, but the suspense lingered over whether it would swing for two cuts or settle for just one. In this high-stakes game, the Hawks managed to eke out a victory, though by a hair's breadth. The razor-thin margin between "two versus one" suggests that the threshold for reconsidering a 50bps move remains tantalizingly low.

Hours before the gavel dropped on their decision, policymakers were handed a gift-wrapped box of inflation news. According to the Bureau of Labor Statistics, consumer price growth in May was as tepid as a lukewarm bath, marking its lowest level since August 2021. To sweeten the pot even more, the CPI's "supercore" edition—like some superhero saving the day—showed a month-on-month dip, a rare sight in recent memory, hinting at potential cooling in the services sector.

So, amidst the swirl of economic data and the grand deliberations of the Fed, one thing's clear: the drama of rates and inflation continues to unfold, with more twists and turns than a Netflix series marathon.

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