Good morning!

After yesterday’s CPI report, the Fed’s goldilocks scenario of cooling inflation without a recession may finally be back on track.

At least Wall Street celebrated as if that were the case (and I’m not talking about meme stocks).

So while inflation remains well above the central bank’s 2% target, the S&P 500 closed above 5,300 for the first time ever.

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A sigh of relief for the Fed

At least for a moment, Jerome Powell can rest easy. 

While the “immaculate disinflation” narrative has splintered, the Fed’s miracle goldilocks scenario appears back on track. 

Wednesday data showed April CPI cooled as expected, climbing 3.4% compared to one year ago.

Core prices saw their smallest gain in three years.

Retail sales, meanwhile, fell far below consensus forecasts. Analysts expected the headline number to jump 0.4%, though it remained flat in April. 

That suggests consumers are tightening their belts. 

And that’s exactly what the Fed wants — and markets know it. 

All three major indexes closed at all-time highs Wednesday, with investors fixated on easing price growth and optimism for a no-recession scenario. 

“Both inflation and consumer spending appear to be cooling off, but at least so far, nothing in the data suggests that the economy is heading for a hard landing,” said Brian Rose, UBS Global Wealth Management economist.

Rose, who expects the Fed to begin easing policy in September, stands among a chorus of forecasters gaining confidence in the trajectory of the economy. 

It’s true that the latest numbers on their own will not dictate policy. But it does support hopes for the central bank to cut interest rates sooner than later.

That in turn provides jet fuel for stocks and consumer confidence. 

The S&P 500, for one, has already secured 24 all-time high closes in 2024.

Those records have been largely booked on speculation for cuts, rather than any concrete messaging from the Fed. 

Should Powell outright say cuts are imminent, who knows how high stocks could march.

"The Federal Reserve has indicated that it's done raising interest rates for this economic cycle, and while rates may remain 'higher for longer,' investors expect that the only place for them to move is lower,” said James Royal, an analyst at Bankrate.

“This expectation is helping put a floor under the market — what experts call the 'Fed put' — and even just the anticipation of lower rates helps buoy stocks."

*At a glance:

Elsewhere:

• Warren Buffett’s Berkshire Hathaway has unveiled its mystery stock. In a regulatory filing Wednesday, the firm revealed a $6.7 billion stake in Chubb, an insurance company. The stock climbed after hours Wednesday. (WSJ)

• China and Russia’s economic ties continue to deepen. Ever since Putin ordered the invasion of Ukraine, Moscow’s ties to Beijing have become increasingly tight and ambitious. The nation’s leaders are set to meet Thursday and Friday in Beijing. (FT)

• Fed official says interest rates aren’t changing soon. Atlanta Fed President Neel Kashkari reiterated his stance that the central bank needs to hold rates steady for “a while longer” before moving ahead with policy adjustments. (Bloomberg)

Rapid-fire:

• The meme-stock rally lost steam Wednesday as GME and AMC tumbled (Nasdaq)

• Saudi Arabia’s sovereign wealth fund slashed its exposure to US equities (Bloomberg)

• “Big Short” investor Michael Burry dumped Alphabet and Amazon stock and bought into a gold ETF (MarketWatch)

• An elite hedge fund bought 1 million GameStop shares way before its 400% meme-fueled surge (Business Insider)

• Sticky inflation puts more retirees at risk of running out of cash (WSJ)

• China doesn’t sell many EVs in the US, but American automakers still fear a flood (NYT)

• Roaring Kitty might be the internet version of Warren Buffett (WSJ)

Last thing:

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