Federal Reserve officials signaled on Friday that interest-rate cuts could begin as early as July if inflation continues on its current downward trajectory, sparking a sharp rally across Wall Street and reigniting hopes for a so-called “soft landing.”
In a closely watched speech in Chicago, Fed Governor Lisa Thornton noted that core inflation had fallen to 2.4% in April — the lowest reading since 2021 — and said the central bank was “increasingly confident” that price pressures were sustainably easing without requiring further economic pain.
“The data is telling a consistent story,” Thornton said. “We are approaching the point where maintaining restrictive policy becomes counterproductive.”
The remarks sent the Dow Jones Industrial Average up 420 points, while the yield on the 10-year Treasury note dropped to 3.82%, its lowest level in three months. Rate-sensitive sectors including real estate and utilities led the gains.
Mortgage rates, which had climbed above 7% earlier in the year, also fell in anticipation of Fed action. The average 30-year fixed mortgage rate dropped to 6.54% according to Freddie Mac, offering relief to prospective homebuyers.
Still, some analysts urged caution. “The Fed has been wrong about inflation before,” noted David Park of Meridian Asset Management. “A single data point doesn’t make a trend.”
Traders in the fed funds futures market are now pricing in a 68% probability of a 25-basis-point cut at the July meeting, up from 34% just one week ago.
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