Inflation is trending upward again, confirming that short-term interest rate cuts are unlikely as the Federal Reserve moves toward a higher long-term interest rate stance.
The Fed's preferred measure of inflation, the “core” consumer spending index that excludes volatile food and energy prices, rose 2.8% in March from a year earlier. This was the same level as February, but 0.5% higher than expected.
Compared to the previous month, the inflation rate rose by 0.3%, in line with expectations.
“Today's numbers mean it will take several months of good inflation data before the Fed is convinced to cut rates,” said Preston Caldwell, Morningstar's chief U.S. economist.
Reversing previous expectations for a rate cut in March or June, the market now priced in only a 45% chance of the first rate cut in September.
Until last week, investors were still considering a rate cut in July, but there is now a 66% chance the central bank will keep rates unchanged for the month.
Caldwell added that unless we see inflation return to 2% in the coming months, combined with a marked deterioration in economic activity indicators, a rate cut in July looks like a bridge too far at this point. Ta.
Fed Chairman Jay Powell warned on April 16th about today's PCE numbers, saying he doesn't expect any progress and that three- and six-month inflation measures are currently higher. said.
The Fed chair also said it would take “more time than expected” to gain the confidence needed to bring inflation down to the central bank's 2% target, and he also cut back on expectations for a rate cut soon. I let it happen.
Chairman Powell said on April 16, “Given the strength of the labor market and the evolution of inflation to date, we believe we should allow more time for restrictive policies to take effect and let the data and future outlook guide us.'' is appropriate.”
His comments marked a departure from previous assurances that the overall outlook had not changed much despite the harsher-than-expected statistics in the first two months of the year.
But Luke Tilley, chief economist at Wilmington Trust, said he expects inflation to fall again and the Fed to cut rates three times this year, so the rate cut will only be postponed to July instead of September. I predict that.
He argues that the agreement for early 2024 is due to housing-related prices and seasonality.
Tiley stressed that inflation was 2.8%, within the central bank's year-end forecast of 2.6%.
“Mr. Powell has said many times over the last year that we need to start cutting before we get to 2%,” Tilley said.
Core PCE inflation is currently 3% on a six-month annualized basis, but has increased to 4.4% on a three-month measurement.
“I think it has accelerated significantly since January.” [inflation] “This number is very high and appears to be seasonal. But it's enough to make the Fed a little concerned that there's a reacceleration happening here,” Tilley said.
“This is far from an ideal situation for the Fed,” Lindsey Piegza, chief economist at Stifel Financial, added on Yahoo Finance Live.
“This complicates their outlook and could delay talks of short-term cuts,” he said.
Piegza predicts that if inflation continues to rise unexpectedly, discussions about rate hikes will be “back on the table.”
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