S&P 500 closes above 5,400 for the first time as Fed notes 'modest' inflation progress

Richard Drew

The S&P 500 jumped to a record and closed above 5,400 for the first time Wednesday after the Federal Reserve’s latest policy announcement and May inflation data pointed to easing pricing pressures.

The broader market index climbed 0.85%, closing at 5,421.03, while the Nasdaq Composite gained 1.53%, ending at 17,608.44. Both the S&P 500 and Nasdaq hit all-time highs and closed at records on Wednesday. The Dow Jones Industrial Average slipped 0.09%, or 35.21 points, to end at 38,712.21.

The Fed kept interest rates unchanged, as was widely expected. The central bank also indicated forward movement has been made on the inflation front, noting, “In recent months, there has been modest further progress toward the Committee’s 2 percent inflation objective.”

However, the Fed’s latest projections, also released Wednesday, showed the central bank only sees one rate cut taking place this year. That is down from three expected rate cuts in early 2024.

Wednesday’s announcement followed the release of fresh U.S. inflation data, which seemed to suggest a cooling trend.

The consumer price index was unchanged for the month of May, lower than the Dow Jones estimate for a 0.1% monthly increase. Year over year, the inflation metric increased 3.3%, which also came in below expectations and represented a slowing from the prior 3.4% pace. Monthly and yearly numbers for core CPI, which excludes the volatile prices associated with energy and food, were also lower than anticipated.

“The CPI neutralized the hawkish Fed,” said Jay Hatfield, founder of InfraCap. “Most market participants believe the economy is slowing, and they’re going to have to cut rates. So that’s why we think the market was shrugging off this really hawkish [Summary of Economic Projections] of just one cut.”

The cooler-than-expected CPI data spurred a decline in Treasury yields, with the rate on the 10-year note falling as low as 4.25%, its lowest level since April 1.