Economists are weighing their opinions after the U.S. consumer price index in March exceeded expectations. What’s the general consensus? Don’t expect a rate cut anytime soon.
Reacting to the print, Seema Shah, chief global strategist at Principal Asset Management, said: “Today’s important CPI print has likely sealed the fate of the June FOMC meeting, with a potential rate cut likely.” The possibility of that happening is extremely low.” “This is the third strong indicator in a row and means that the stagnant disinflation narrative is no longer temporary.
“In fact, even if inflation subsides and falls to readable levels next month, there is likely enough alarm now within the Fed that the July rate cut may be going too far. The US presidential election will start intervening, along with the Fed’s decision-making,” Shah added.
Investors now expect two 25-basis point rate cuts this year, up from the six expected at the beginning of the year, according to Bloomberg data.
The Consumer Price Index (CPI) rose 0.4% month-on-month in March and 3.5% year-on-year, accelerating from February’s 3.2% annualized rise and faster than economists expected.
On a “core” basis, which excludes volatile food and gas prices, prices in March rose 0.4% from the previous month and 3.8% from a year earlier, consistent with February’s data. Both indicators exceeded economists’ expectations.
Ryan Sweet, chief U.S. economist at Oxford Economics, said the strong data could force more policymakers into “two camps of rate cuts.”
“The Fed is leaning toward lowering rates this year, but the strength of the labor market and recent rise in inflation give the central bank room to be patient,” Sweet said. “If the Fed does not cut rates in June, the window could be closed until September, as little data will be released between June and July meetings that could change the Fed’s calculations.”
“It’s increasingly likely that the Fed will cut interest rates to less than 75 basis points this year,” he predicted.
But EY chief economist Greg Daco cautioned investors to be patient, saying: “I think we need to be very careful about the idea that this is a circumstantial process.” .
“These kinds of indicators are still showing disinflationary pressures. They’re still moving in the right direction and it’s going to take time,” he said in an interview with Yahoo Finance.
After the data was released, the market priced in an 80% chance that the Fed would leave interest rates unchanged at its June meeting, according to data from the CME FedWatch tool. That’s up from about 40% the day before.
More than half of investors also expect the central bank to keep interest rates on hold until its July meeting, and the market now largely expects the first rate cut to occur in September.
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