By Stephen Culp
NEW YORK (Reuters) -U.S. stocks advanced Tuesday and the dollar dipped after a report showed sticky U.S. inflation continues to meander lower as the Federal Reserve gathers to assess the effects of its restrictive policy and chart the expected timing of interest rate cuts.
Crude prices tumbled over worries of softening global demand, although the U.S. economy appears robust enough to withstand the Fed’s restrictive policy, for now.
The three major U.S. stock indexes were higher, with a modest build-up of momentum in the afternoon keeping them on track to notch fresh closing highs.
The Labor Department’s Consumer Price Index (CPI) unexpectedly inched higher on a monthly basis in November, but edged lower on an annual basis, stoking concerns that inflation is taking longer to return to the Fed’s 2% target than many had hoped and raising the possibility that the central bank will keep policy rates in restrictive territory for longer than anticipated.
“There’s something for everyone in this release,” said Scott Ladner, chief investment officer at Horizon Investments in Charlotte, North Carolina.
“If you want to believe that inflation is reigniting, there are elements of the report that support that.” Ladner added. “If you want to believe inflation is cooling, you can find things in there to support that too.
“We’re getting a middling reaction to a middling number.”
The Federal Open Markets Committee (FOMC) convened on Tuesday for its two-day monetary policy meeting, which is expected to culminate in a decision to leave the Fed funds target rate at 5.25%-5.50%.
The Fed is also expected to release its Summary Economic Projections and dot plot, which should shed light on the central bank’s path forward.
“I’m expecting a steady-as-she-goes, a ‘we’ll rely on the data’ kind of message from the Fed,” said Peter Tuz, president of Chase Investment Counsel in Charlottesville, Virginia. “Anything indicating too much strength in the economy or unexpected weakness will be a surprise to me.”
“It’s a tightrope that (Federal Reserve Chair) Jay Powell’s been on for a while and I don’t think he’s going to step off of it for several more months,” Tuz added.
In a busy week for central banks elsewhere, the European Central Bank and the Bank of England are also due to issue interest rate decisions on Thursday.
The Dow Jones Industrial Average rose 136.64 points, or 0.38%, to 36,541.57, the S&P 500 gained 13.46 points, or 0.29%, to 4,635.9 and the Nasdaq Composite added 69.35 points, or 0.48%, to 14,501.84.
European shares reversed course to close lower following the CPI report, after Germany’s DAX and France’s CAC-40 touched record highs.
The pan-European STOXX 600 index lost 0.21% and MSCI’s gauge of stocks across the globe gained 0.26%.
Emerging market stocks rose 0.36%. MSCI’s broadest index of Asia-Pacific shares outside Japan closed 0.46% higher, while Japan’s Nikkei rose 0.16%.
Treasury yields edged lower in choppy trading after the core CPI number landed largely in line with expectations.
Benchmark 10-year notes last rose 8/32 in price to yield 4.2082%, from 4.239% late on Friday.
The 30-year bond last rose 12/32 in price to yield 4.3089%, from 4.33% late on Friday.
The dollar gained back some of its losses in the wake of the inflation data, but remained lower against a basket of world currencies.
The dollar index fell 0.23%, with the euro up 0.26% to $1.0789.
The Japanese yen strengthened 0.34% versus the greenback at 145.68 per dollar, while sterling was last trading at $1.256, up 0.06% on the day.
Oil prices tumbled as concerns about excess supply and slowing demand overshadowed supply risks due to escalating tensions in the Middle East.
U.S. crude slid 3.80% to settle at $68.61 per barrel, while Brent settled at $73.24 per barrel, down 3.67% on the day.
Gold reversed its gains following the inflation data, and was last slightly lower.
Spot gold dropped 0.1% to $1,979.99 an ounce.
(Reporting by Stephen Culp Additional reporting by Amanda Cooper in LondonEditing by Mark Potter, David Evans and Alex Richardson)
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