Markets hedge bets on July rate cut after higher US CPI figures
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The news: US consumer price index data for March came in hotter than expected on Wednesday, leading markets to slash bets that the Federal Reserve will begin cutting rates from July.
The numbers: US headline CPI accelerated to 3.5%, while core CPI (which strips out food and energy) held at 3.8% on a year-on-year basis. Both CPI measures are 0.1% above expectations, and mark the second inflation increase of 0.4% in consecutive months.
Housing and fuel costs also rose in March, which in combination contributed to over half of the overall CPI increase.
The context: On the back of the data, futures traders lowered rate-cut expectations, pricing in just one or two cuts in 2024, compared with the six to seven anticipated earlier in the year. Traders had been anticipating that a rate cut in July would be a near-certainty, but since Wednesday’s figures were released they have halved these bets on timing from around 98% to 50%. Traders are now leaning towards rate cuts beginning from the Fed’s November meeting, which is scheduled for just after the US Presidential election.
What they said: On the back of the inflation data President Joe Biden released a statement, stating that there is “more to do to lower costs for hardworking families. Prices are still too high for housing and groceries, even as prices for key household items like milk and eggs are lower than a year ago.”
He added: “I have a plan to lower costs for housing—by building and renovating more than 2 million homes—and I’m calling on corporations including grocery retailers to use record profits to reduce prices.”
