Another surge in inflation, exceeding expectations, has heightened concerns among investors that the Federal Reserve may postpone anticipated interest rate cuts this year.
The Consumer Price Index (CPI) for March showed a 3.5% increase year-over-year, surpassing February’s 3.2% rise and economist forecasts.
The core CPI, excluding volatile food and energy prices, rose by 3.8%, aligning with February but exceeding expectations slightly.
Greg Daco, EY’s chief economist, commented that this inflationary trend pressures policymakers to maintain a prolonged period of higher interest rates.
Following the CPI release, the stock market declined, erasing expectations for a June rate cut by the Fed. Traders now predict an 81% chance of no action in June and a 44% chance of a cut in July. They’ve also revised their forecast for rate cuts in 2024, reducing it to two, compared to the Fed’s previous projection of three.
Fed officials, including Atlanta Fed President Raphael Bostic, suggest that if inflation persists and the economy continues to grow, the anticipated rate cuts for 2024 may be deferred.
The March CPI report marks the third consecutive month of higher-than-expected inflation, with monthly increases exceeding forecasts.
Victoria Fernandez of Crossmark Global Investments noted that the sustained inflationary pressure complicates the Fed’s objective of achieving a consistent downward trajectory towards the 2% target.
Amidst strong labor market data and persisting inflation concerns, some Fed officials advocate for maintaining current interest rates or even considering rate hikes if inflation persists.
The inflation data has also sparked political reactions, with President Joe Biden emphasizing the need to address high costs for essentials, while former President Donald Trump criticized the Fed’s handling of inflation.
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