Economists React to Hotter-Than-Expected US Consumer Prices, Predicting No Rate Cuts Soon
Economists are buzzing after US consumer prices came in hotter than expected in March, leading many to believe that rate cuts from the Federal Reserve are off the table for the time being.
Seema Shah, chief global strategist at Principal Asset Management, expressed her reaction to the data, stating, “Today’s crucial CPI print has likely sealed the fate for the June FOMC meeting with a cut now very unlikely. This marks the third consecutive strong reading and means that the stalled disinflationary narrative can no longer be called a blip.”
The Consumer Price Index (CPI) rose 0.4% over the previous month and 3.5% over the prior year in March, surpassing economist expectations. On a “core” basis, prices also climbed higher than anticipated, with a 0.4% increase over the prior month and a 3.8% rise over last year.
Ryan Sweet, chief US economist at Oxford Economics, noted that the stronger data may push more policymakers towards supporting two rate cuts this year. However, he emphasized that the Fed has room to be patient due to the strength of the labor market and recent gains in inflation.
Greg Daco, chief economist at EY, urged caution and patience among investors, stating, “I think we have to be very careful with this idea that it’s a play-by-play process.” He emphasized that while the data shows signs of disinflationary pressures, it will take time for the situation to evolve.
Following the release of the data, markets are now pricing in an 80% chance that the Federal Reserve will hold rates steady at its June meeting, up from a 40% chance the day prior. Investors are also anticipating the first rate cut to come in September, with more than half expecting the central bank to hold steady through its July meeting.
Overall, economists are predicting a more cautious approach from the Federal Reserve in light of the stronger-than-expected consumer price data, with many now expecting fewer rate cuts than initially anticipated earlier in the year.
