A measure of underlying US inflation fell in April to its lowest level in three years, turning attention to the Federal Reserve's next move as tighter borrowing conditions squeeze consumers. The consumer price index rose 0.3% against the previous month, according to data published on Wednesday, lower than forecasts for a 0.4% increase. Consumer inflation was up 3.4% year-over-year, or 3.6% when excluding food and energy prices—the lowest mark since April 2021. Inflation's April retreat was a welcome sign for market participants and Fed officials alike after prices in the first quarter were stickier than anticipated. However, wholesale inflation—considered a predictor of consumer prices—picked up steam last month, as the producer price index gained 0.5% from March and 2.2% year-over-year. The Fed will produce an updated set of economic projections at the conclusion of its next policy meeting on June 12.

During a moderated discussion in Amsterdam on Tuesday, Fed Chair Jay Powell said officials did not expect the path to 2% inflation to be a "smooth road," acknowledging that inflation has abated at a slower pace than most people had hoped. Interest rates should be high enough today to cool the economy and tame inflation, Powell said, adding: "We'll need to be patient and let restrictive policy do its work." A new episode of The Outthinking Investor podcast features a discussion about the role alternatives can play in managing risk and unlocking opportunities during times of market uncertainty.