Dow Jones, Treasury Yields Reaction To CPI Inflation Rate

The Dow Jones Industrial Average slid 2.7% in Friday stock market action. The S&P 500 sank 2.9% and the Nasdaq composite 3.5%.

It remains to be seen whether inflation beginning to come down from its peak can create a sustainable rally.

Be sure to read IBD's The Big Picture column after each trading day to get the latest on the stock market trend and what it means for your trading decisions.

Lately, markets have been in a tug-of-war, with softer economic data boosting hopes for a coming shift in Fed policy

Yet messaging from the Federal Reserve, including chief Jerome Powell's warning of "pain" ahead, suggests that there's no reprieve from Fed tightening in sight.

Friday's CPI data surely added weight to the bear case.

The Federal Reserve is expected to raise rates by 50 basis points at next Wednesday's policy meeting. Another half-point hike has been expected in July.

However, after the CPI report, CME Group's FedWatch page shows overwhelming odds of additional hikes of at least 50 basis points at the June, July and September meetings, with slightly-better-than-even odds of a half-point hike in November.

That would bring the Federal Funds target range to 2.75%-3%, up from 0.75%-1% currently.