Surprising inflation, China news sends S&P 500 stumbling originally appeared on TheStreet.

The stock market needs a new catalyst.

Until now, the S&P 500's rally since early April was built on the potential for sellers to be caught off guard by surprising trade deals. Since the benchmark index has rallied 21% after Trump paused reciprocal tariffs on April 9, fewer investors will likely be surprised by developments, and many may be disappointed with outcomes.

The possibility that tariff deals may be baked into stock prices appeared when a softer-than-expected May inflation report, alongside what should've been positive China trade news, fell flat. The S&P 500 posted early gains on the news, but reversed to close lower by the end of trading.

Related: CPI inflation report resets interest rate cut bets

The culprit? While CPI showed inflation was relatively tame last month, most still believe tariffs will cause inflation to reassert itself later this year. Advancing China and the U.S. negotiations are encouraging, but President Trump's comments regarding China tariffs are disheartening.

The "meh" reaction to the inflation and China trade news caught the attention of veteran hedge fund manager Doug Kass. Kass has been tracking the markets professionally since the 1970s, and he's the former research director for Leon Cooperman's Omega Advisors, one of the most famous hedge funds in history.

After witnessing today's reaction to the news, Kass offered up a frank opinion that may frustrate some investors.

The Federal Reserve's mission is to balance inflation and unemployment. It does this by adjusting the Fed Funds Rate. When it increases rates, economic activity slows, crimping inflation but increasing unemployment. When it lowers rates, GDP expands, lowering unemployment but increasing inflation.

The dual mandate means that the Fed is in a pickle this year. After the most hawkish monetary policy since the 1980s caused inflation to drop below 3% from over 8% in 2022, the Fed switched gears, cutting rates in September, November, and December to lower unemployment, which has risen to 4.2% from 3.4% in 2023.

Related: Billionaire fund manager sends strong message on Fed Chair Powell's future

Hopes were for more cuts in 2025, but Fed Chair Powell was forced to pause additional reductions amid sticky inflation and the threat of tariffs driving prices higher.

As a result, many Wall Street economists have gone from expecting many cuts this year to none.

The CPI report showed that inflation in May only inched up 0.1% month over month, less than the 0.2% predicted. However, headline CPI showed inflation of 2.4% year over year last month, up from 2.3% in April. Meanwhile, core CPI, excluding volatile energy and food prices, was up 2.8% in May, matching April.