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The most anticipated economic report of the month showed that inflation has not just stalled, but increased. The news almost certainly rules out a rate cut in June, and traders are increasingly skeptical there will be more than a couple cuts in 2024, if any at all.
Consumer prices in March were up 3.5% from a year earlier, up from 3.2% in February, according to data released by the Bureau of Labor Statistics on Wednesday. This marks the second month in a row of rising inflation and represents the biggest jump since August.
Core inflation, the Fed’s preferred inflation measure, stayed at 3.8% annually in March, unchanged from February. The Fed’s target for core inflation remains 2%. On a monthly basis, the index increased by 0.4% in March, unchanged from February’s rate.
This month’s inflation reading is the last set of price data officials will see before their April 30-May 1 meeting. While officials are on track to hold rates steady at the next Federal Open Markets Committee meeting, the next inflation data, set for release on April 26, could shape the debate over what to do at the subsequent meeting in June.
“Inflation is down from the high of 9.1% in June 2022, but it is not down far enough for the Federal Reserve to begin cutting interest rates,” Bright MLS Chief Economist Lisa Sturtevant, said in a statement. “The Fed is looking for core inflation to be at 2% before it lowers the federal funds rate. The rationale is that prices are increasing too fast because demand is still too strong, and higher interest rates are needed to cool that demand and bring prices down.”
Uncertainty looms over the Federal Reserve’s timeline for initiating cuts to its benchmark federal-funds rate. Many traders predicted up to seven rate cuts at the beginning of 2024, now many are betting on one or two—or none, especially after the release of the latest jobs report.
The index for shelter and gasoline accounted for 50% of the monthly increase in the index for all items in March. The annual rent inflation in March was 5.7%, unchanged from last month and still high enough to help keep inflation elevated.
“Rents have been coming down in many parts of the country as record levels of new apartments were delivered in 2023,” Sturtevant said. “However, data on rents enter the CPI calculation with a lag—sometimes by as much as 12 to 18 months. So, we might not see the effect of lower rents in the CPI until this summer or fall, which means hitting a 2% target won’t be possible until at least then.”
Since the strong March labor market reading, interest rates have posted a general upswing, with the 10-year moving toward 4.4%, its highest yield since November. Meanwhile, mortgage rates have steadied recently.
Shelter costs are known for keeping inflation artificially high, the consumer price index minus shelter stood at 1.9% in March, the sixth month in a row below 2%.
“By sticking hard-and-fast to its inflation target, the Fed risks waiting too long to lower interest rates and is not taking into account the particular way in which the housing market is driving inflation,” Sturtevant said.
English (US) ·