Market Wire: US Inflation Comes In Hot, Lowering Odds on June Rate Cut

CalendarApril 10, 2024

Consumer price growth remained stubbornly elevated in the United States last month, suggesting that hotter-than-expected prints in January and February were not simply driven by seasonal aberrations, and raising doubts around the Federal Reserve’s plan to deliver three rate cuts over the remainder of the year. According to data published by the Bureau of Labor Statistics this morning, the core consumer price index - with highly-volatile food and energy prices excluded - rose 3.8 percent in March from the same period last year, up 0.4 percent on a month-over-month basis. This exceeded consensus estimates among economists polled by the major data providers ahead of the release, which were set closer to the 3.7-percent mark.

On a headline all-items basis, prices rose 0.4 percent on a month-over-month basis in March, up 3.5 percent over the previous year, up from the 3.2-percent pace set in February. Americans paid 1.1 percent more for energy on a month-over-month basis, with higher gasoline prices lifting the headline print, and the shelter sub-index climbed 0.4 percent after rising at the same pace in the prior month.

According to our estimates, the so-called “supercore” measure—which captures core services minus housing—rose 3.8 percent relative to a year prior, up from 4.3 percent in February, and far too hot for the Federal Reserve’s comfort.

Short-term Treasury yields are popping higher, with both the 2- and 10-years gaining almost 13 basis points as investors pull back rate cut expectation, and the dollar is gaining. Equity markets and risk-sensitive currencies are in retreat.

Bottom line: A lot can change between now and June: There are two consumer price index updates, two personal consumption expenditures prints, and two non-farm payrolls reports scheduled ahead of the first summer decision. But today’s data suggests that the underlying inflation trend remains far stronger than markets and Fed officials had previously anticipated, implying that a pivot toward easier policy could be delayed for several months, at the least.


Karl Schamotta

Karl Schamotta

Chief Market Strategist

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