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What you need to know today

Wall Street hits record high
The S&P 500 and the Nasdaq rose to record highs after inflation data came in lower than expected. The Dow Jones Industrial Average jumped 350 points as investors bet the Federal Reserve may cut rates in September. All three major indexes closed at record highs. Tech heavyweights, Nvidia, Apple and Microsoft, all rose. Yields on the benchmark U.S. 10-year Treasury and 2-year Treasury dipped. Oil prices also fell.  

Inflation eases
April's consumer price index rose 0.3%, slightly less than expected, while on a 12-month basis, inflation increased 3.4% in line with economists' forecasts. It's the first time this year that the data did not come in hotter than expected, increasing the prospect of a Fed rate cut sometime later this year, although inflation remains above its 2% target. 

Unsustainable debt
CEO of JPMorgan Chase Jamie Dimon warned growing U.S. fiscal deficit is unsustainable and could lead to problems in the future if it is not addressed. "America has spent a lot of money. During Covid and after Covid, our deficit is at 6% now. That's a lot, but obviously that drives growth," Dimon told Sky News. The federal government has spent $855 billion more than it has collected so far this year, according to the U.S. Treasury Department. 

Meme stock rally fizzles
Shares of GameStop and AMC slumped more than 18% each amid signs of the meme frenzy petering out. The craze was reignited Monday by the reappearance of "Roaring Kitty" on social media. Before Wednesday, GameStop and AMC were up 179% and 135% this week, respectively. Chart analysts are predicting the "short squeeze" could end badly. 

12-second crypto heist
The Department of Justice indicted two brothers for allegedly stealing $25 million in cryptocurrency within roughly 12 seconds, raising concerns about the "integrity of the blockchain." Anton Peraire-Bueno, 24, and James Peraire-Bueno, 28, brothers who attended MIT, were arrested on Tuesday for charges of wire fraud and money laundering.

[PRO] Trade tension winners
As the Biden administration ratchets up tariffs on $18 billion worth of Chinese imports, analysts at Morgan Stanley have picked a handful of U.S. stocks that could benefit from U.S.-China trade tensions.

The bottom line

For the first time this year, inflation cooled more than expected, propelling stocks to record highs. Notably, the S&P 500 achieved this feat in just 48 days, compared to 746 days previously. And that was despite an ugly April, which had sent the Dow, S&P 500 and Nasdaq down more than 4% each. 

Well, the latest data, including April's flat retail sales data, fueled immediate speculation about when the Federal Reserve might lower interest rates.

Current market sentiment, reflected in Fed Funds Futures trading, now suggests a 75.3% probability of a rate cut at the September Fed meeting, according to the CME FedWatch Tool. This marks an increase from the 44.9% probability indicated on Tuesday.

However, Meghan Shue, head of investment strategy at Wilmington Trust, predicts three rate cuts this year, starting in July. Excluding lagging components from the Consumer Price Index, such as housing, auto insurance, and medical insurance, Shue argues that inflation is "running at below 2%," the Fed's target.

"We think this gives the Fed cover to start cutting rates earlier than the market expects," Shue explained to CNBC's "Money Movers." "We think the first cut will come in July and three cuts this year. That plays in nicely for small caps, which are more rate-sensitive, but just in case we are wrong we are also in U.S. large-caps, which to some degree is a little bit of a hedge."

Despite these expectations, Fed Chair Jerome Powell has reiterated the need for patience, emphasizing that inflation is falling slower than anticipated and that the central bank will maintain its current rates for a longer period.

Skyler Weinand, Chief Investment Officer at Regan Capital, agrees that a September rate cut is possible but believes the Fed is likely seeking more evidence before making a decision.

"We're still a far cry from the Fed's desired 2% inflation level, and the economy remains strong, so we'll need a few more weak inflation prints to give the Fed the green light on lowering rates," Weinand stated. "The Federal Reserve is not out of the woods yet."

— CNBC's Jeff Cox, Pia Singh, Alex Harring, Lisa Kailai Han, Yun Li, Vicky McKeever, Samantha Subin, Scott Schnipper and Hakyung Kim contributed to this report.