Rising Consumer Price Index in the US: Impact on Markets and Fed Rate Cuts

2024-03-12 16:39:00
A customer buys food in a supermarket in Washington (USA). EFE/EPA/Michael Reynolds

The consumer price index (CPI) of the United States rose to 3.2% in February in an interannual rate, while compared to the previous month it increased 0.4%, above what analysts expected and well above the 2% target set by the Federal Reserve (Fed).

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Most of the increase, 60%, was attributed to the increase in housing and gasoline prices, and the energy price index grew 2.3% compared to January, while food prices fell. remained almost unchanged, according to the Bureau of Labor Statistics (BLS).

A second straight month of stronger-than-expected inflation effectively closed the door on the possibility of a Federal Reserve interest rate cut before June, and some traders and analysts are betting that central bankers may have to wait. even more.

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The underlying price index, excluding food and gasoline, rose 0.4% in February compared to January, the same pace as the previous month.

Other items that registered increases in February were plane tickets, vehicle insurance, clothing and entertainment, while personal care goods and furniture fell.

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Annual core inflation, which does not include food or energy prices due to their volatility, stood at 3.8%, while energy prices decreased by 1.9% year-on-year and food prices increased by 2.2%. %.

The inflation data was received with caution by the markets at its opening, but mid-session, the S&P 500 index and the technological Nasdaq index recovered positive numbers.

A person shops at a Kohl’s store in Clifton, New Jersey. (AP Photo/Seth Wenig)

“What is clear is that inflation data like those from January and February are not going to allow the Fed to lower rates quickly,” said Robert Frick, an analyst at Navy Federal Credit Union, in a statement.

In the opinion of Ben Laidler, global market strategist at the eToro investment and trading platform, the markets had already incorporated the inflation data into their calculations and now the question is whether next week when the Fed meets the inflation data will be maintained. hopes that the first rate cut will come in June.

“Inflation tipping points have already risen, and investors are anticipating the rotation that will occur as we get closer to rate cuts,” Laidler said.

The year-on-year increase is one tenth higher than the 3.1% increase in the CPI in January, and shows an insistent increase in prices and above the objectives of the Fed, which hopes to be able to lower rates throughout this year. but that continues to find its great pending task in inflation to be able to do it.

Interest rates have remained in a range between 5.25 and 5.5% since last summer, following the dozen increases that began in March 2022.

Unemployment and consumer confidence remain solid, but raising prices remains a pending task, although the US issuing bank hopes to be able to begin a moderate rate cut, expected in June, while the markets already rule out a decline. in May.

Fed policymakers meet next week and are expected to leave the policy rate at its current range of 5.25%-5.5%, where it has been since last July.

Until recently there had been speculation that a rate cut might still come at its next meeting on April 30-May 1 if inflation, which fell rapidly last year and then jumped in January, gets back on track toward the April 2 target. %.

But Tuesday’s inflation report “is an ugly read that will do nothing to calm nerves” at the Fed, wrote BMO economist Scott Anderson. “Clearly, tight monetary policy has not yet fully done its job and a patient and mildly hawkish Federal Reserve must remain in place for the monetary medicine to take full effect.”

The Federal Reserve Board building on Constitution Avenue in Washington, U.S. REUTERS/Leah Millis/File Photo

Core inflation in services excluding rents, a measure that Federal Reserve Chair Jerome Powell has said he pays close attention to, rose 0.5% in February from the previous month, and in recent Three months it has grown on an annualized basis by 6.8%, compared to the rate of 6.7% in January.

Those very high readings will add to the Fed’s caution regarding the inflation outlook, Nationwide’s Kathy Bostjancic said.

Traders of futures contracts that track the Fed’s policy rate price a less than one-in-10 chance of a rate cut in May, but continue to see regarding a 70% cut by June.

After the inflation data, they slightly lowered their view on how much the Fed will cut rates by the end of the year, although they generally still expect the central bank to make four quarter-point cuts from June to December.

(With information from EFE and Reuters)

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