2024-03-12 14:26:00
“Interest rate change is not a sure-fire success” Consumer prices in the USA are rising surprisingly
March 12, 2024, 3:26 p.m. Listen to article
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US inflation is proving more stubborn than expected. In view of a possible interest rate turnaround in June, consumer prices in the USA will rise again in February. Will this undermine a rate cut by the Fed?
Inflationary pressure in the USA has surprisingly increased and is clouding the prospects of a rapid interest rate turnaround by the central bank. Consumer prices rose by 3.2 percent in February compared to the same month last year, after 3.1 percent in January, according to the Labor Department. Economists surveyed by the Reuters news agency had expected an unchanged figure of 3.1 percent.
“The renewed sharp rise in consumer prices is shocking. Expectations of key interest rate cuts are faltering. The start of the interest rate turnaround in June is not a sure-fire success,” says economist Bastian Hepperle from Hauck Aufhäuser Lamp Privatbank. However, the most likely scenario on the futures markets is that the first US interest rate move will come in June.
This is probably also because there are signs of a slight easing in the underlying inflation trend, which the central bank pays close attention to: the so-called core rate, which excludes the fluctuation-prone costs for energy and food, fell to 3.8 percent from 3.9 percent at the beginning of the year. However, experts had expected a sharper decline to 3.7 percent. The dollar initially rose sharply following the inflation data, but later fell.
From January to February, consumer prices in the USA rose by 0.4 percent, as economists expected. “US inflation is proving to be more stubborn than expected a few months ago,” said LBBW economist Dirk Chlench. He points out that rising housing and gas prices in February were primarily responsible for the 0.4 percent month-on-month increase in the consumer price index. “Given the stalled disinflation in services prices, we recently raised our inflation forecast for the year to 3.0 percent and now see this confirmed by the February figures,” the expert added. In his opinion, a reduction in US key interest rates before June is now “finally off the table”.
The US Federal Reserve is countering inflation with a tight monetary policy and is aiming for a figure of two percent. Inflation has eased significantly, Fed Chairman Jerome Powell recently said in Congress. But it is not a foregone conclusion that the inflation rate will fall towards the central bank’s target value. The monetary authorities needed “greater confidence” in a sustained decline before they could cut key interest rates.
After some aggressive increases, the US Federal Reserve paused several times and kept the key interest rate constant in the range of 5.25 to 5.50 percent. Economists do not expect any change for the interest rate decision on March 20th.
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