US500: Why Will Lower CPI Data Help The Stocks Recover?

US500: Why Will Lower CPI Data Help The Stocks Recover?


The US500 and all other indices reacted very well after the U.S
reported CPI data, lower than expected.

During the last FOMC, Powell said that the Fed will continue to raise interest rates
until the Inflation Rate is brought under control.

He also emphasized that they will increase the interest rate projections for 2023.
With that sentence, he showed a hawkish stance from the Fed on the current economic situation.

After the CPI data came in lower than expected, the USD fell sharply and indices and stocks rallied.

Why did this happen?

Bearing in mind that the main purpose of increasing interest rates is to fight the inflation rate.

The low CPI data implies that the Fed will no longer raise interest rates in larger steps and may prefer to slow down
now and monitor the economy over the coming months.
So we may see a dovish FED position.

With this, it is assumed that businesses will not be greatly affected by the new interest rates and maybe they have some hope again.
So they will lend with a smaller interest rate than actually expected.

A higher interest rate means that loans are too expensive for businesses and they will try not to expand further.

So the lower CPI data shows that there is some light for businesses at the end of the tunnel.

Thanks and good luck!