Today, most eyes are on the March Consumer Price Index (CPI) report released this morning. In a nutshell, inflation came in slightly hotter than expected. Specifically, the CPI climbed 0.4% month-over-month and 3.5% year-over-year (YOY) in March, marking an “acceleration from February’s 3.2% annual gain in prices.” The report also came in slightly higher than the 0.3% increase economists had predicted last week.
For anyone who has been worried about a stock market crash, this news isn’t likely to quell any fears. That’s especially true with all major indices down today. Still, the report isn’t necessarily a reason to immediately panic, although it does make for a slightly more complicated economic landscape.
Is a Stock Market Crash Coming?
Whenever an important CPI report is close to being released, fears of a stock market crash tend to rise. This reaction makes sense, as the abounding uncertainty easily casts a shadow over financial markets.
As InvestorPlace’s Shrey Dua recently reported, if polled economists’ CPI predictions had panned out, it wouldn’t have been encouraging for the stock market. Now, we know that inflation is rising at a slightly higher rate than forecasted, meaning things look even a little more grim.
Adding to the uncertainty is the fact that experts believe we now won’t see any interest rate cuts in the near future. That’s also bad news for investors, as higher interest rates mean more trouble for markets. Ryan Sweet, Chief U.S. Economist at Oxford Economics, discussed this topic with Yahoo Finance. Sweet talked about the likelihood of the Federal Reserve slashing rates by less than 75 basis points in 2024:
“The Fed has a bias toward cutting interest rates this year, but the strength of the labor market and recent gains in inflation are giving the central bank the wiggle room to be patient […] If the Fed does not cut interest rates in June, then the window could be closed until September because there is little data released between the June and July meetings that could alter the Fed’s calculus.”
Seema Shah, Chief Global Strategist at Principal Asset Management, issued a similar statement, noting that the CPI report has “likely sealed the fate for the June FOMC meeting with a cut now very unlikely.”
This isn’t very encouraging, as Wall Street hates high interest rates. How they weigh heavily on financing and corporate earnings tends to weigh down markets in turn, creating broad problems for investors.
How the Federal Reserve will actually react to the latest CPI data remains uncertain. “Given the strength of the wider economy, the Fed has essentially no reason to cut rates in the near term,” Dua told me. That said, whether or not the central bank opts to cut rates further will play a big role in determining the likelihood of a crash. For as long as the Fed holds out on rate cuts, though, many investors will likely approach markets with caution.
On the date of publication, Samuel O’Brient did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
