U.S. CPI exceeds expectations, three major U.S. stock index futures dive

According to data released by the U.S. Department of Labor, the U.S. consumer price index (CPI) increased by 8.3% year-on-year in April, 0.2 percentage points lower than that in March, ending the continuous upward trend since August 2021. The data shows that after excluding the volatile food and energy prices, the US core CPI rose by 0.6% month-on-month in April, 0.3 percentage points lower than that in March; the year-on-year increase fell to 6.2%, 0.3 percentage points lower than the previous value. The U.S. core CPI rose 6.5% year-on-year in March, the highest since August 1982.

Inflation has been the biggest threat to the post-pandemic U.S. economic recovery. Rising oil and food prices are a problem, but more so, inflation has spread to real estate, car sales and many other areas. The Fed has raised interest rates twice so far this year and has pledged to keep inflation ahead of its 2% target. The core CPI is well above the Fed's inflation forecast for this year and more than three times the Fed's 2% target.

The three major U.S. stock index futures plummeted, and U.S. stocks closed down collectively. The S&P 500 closed down 1.65% to 3935.18 points; the Dow closed down 1.02% to 31834.11 points; the NASDAQ closed down 3.18% to 11364.24 points. Technology stocks tumbled, Tesla closed down 8%, Coinbase fell 26%, and Apple fell more than 5%.

Before and after the April CPI data was released, New York Fed President Williams, Cleveland Fed President Mester, Richmond Fed President Barkin and other Fed officials delivered their first speeches after the May meeting on interest rates. As far as their remarks are concerned, these Fed officials all support 50 basis points of interest rate hikes in the next few meetings, which is consistent with Powell's previous signals. Although the cooling of inflation was expected, the decline was less than expected, adding uncertainty to the follow-up Fed policy.

Fed Chairman Jerome Powell signaled last week that Fed officials are open to several 50 bps rate hikes in the coming months. The CPI may lift market expectations for the core PCE price index, the Fed's preferred inflation gauge, to be released on May 27. U.S. President Biden and Democrats have struggled to cope with high inflation in 2018. U.S. President Biden on Wednesday outlined a White House plan to help U.S. farmers boost crop yields in response to a drop in European food exports caused by the Russia-Ukraine conflict, helping future suppression price. That threatens their narrow majority in Congress; but the job market is strong and consumer spending is resilient.