Hot CPI Torches June Rate Cut Hopes

The consumer price index (CPI) for March, released Wednesday, did not bring good news. I’ll parse the numbers, in a minute. But first the upshot: June’s interest rate cut hopes have collapsed.

After the CPI report’s release on April 10, the odds on Wall Street of a Federal Reserve rate cut by June 12 fell from 54% to 21%.

Inflation ran hot for a third consecutive month in March, raising doubts about when the Fed will feel confident that inflation has been sufficiently curbed to allow rate cuts.

Overall prices increased 3.5% from a year earlier, up from 3.2% in February, driven largely by the rising cost of rent and gasoline, according to the U.S. Bureau of Labor Statistics. On a monthly basis, the CPI rose 0.4%, similar to the previous month. Economists had expected 3.4% and 0.3%, respectively.

Core CPI, which excludes volatile food and energy components and is watched more closely by the Fed, rose 0.4% in March, topping an expected 0.3% but in line with February’s rise. That kept the annual increase in core CPI at 3.8% (see chart).

The index for shelter rose in March, as did the index for gasoline. Combined, these two indices accounted for over half of the monthly increase in the index for all items.

Feel the burn…

The numbers were not what the Fed wanted to see. Nor can the Biden administration be pleased, amid the bitterly fought presidential election.

Since reaching a 40-year high of 9.1% in June 2022, inflation has dramatically fallen. But after rapid improvement in the autumn, the CPI has accelerated on a monthly basis to a range of 0.3% to 0.4% so far in 2024.

Products such as used cars, furniture and appliances have gotten less expensive as COVID-induced supply bottlenecks have mended. But services such as rent, car insurance, car repair, electricity, and transportation have gotten pricier.

Some politicos blame “greed-flation,” whereby companies are using the inflationary environment as a pretext to gouge consumers. But the evidence for this dynamic is spotty.

Read This Story: A Make-or-Break Week for The Rally

The latest numbers are not kind to the narrative that hotter-than-expected inflation numbers in January and February were seasonal anomalies. Wall Street and the Fed are worrying that we’re not making enough progress in getting inflation down to the Fed’s 2% target.

Salt in the wounds…

To rub salt in the wounds of central bank doves, inflation expectations are on the rise again. Americans see inflation climbing over the long term, a key survey this week showed.

The median expectation is that the inflation rate will be up 3% one year from now, according to the latest New York Federal Reserve Survey of Consumer Expectations, released April 8.

In the New York Fed survey (for the month of March), consumers also expect that inflation will remain high in the coming years, projecting that it will hover around 2.9% three years from now, up from expectations of 2.7% in February and 2.4% in January.

Then again, the American public has been remarkably sour about the economy, despite historic jobs growth and an expanding recovery. Much of the disconnect stems from partisan posturing. In the coming days, brace yourself for ferocious media spin on inflation from both the left and right.

We’ll see if the disappointing news on inflation continues on Thursday, with release of the producer price index (PPI) for March.

For all of 2024, the financial markets now see only 28% odds of at least three quarter-point rate cuts from the current 5.25% to 5.5% range for the Fed’s key policy rate.

As you’d expect, stocks took the CPI data poorly. The main U.S. stock market indices closed sharply lower Wednesday as follows:

  • DJIA: -1.09%
  • S&P 500: -0.95%
  • NASDAQ: -0.84%
  • Russell 2000: -2.52%

The Dow Jones Industrial Average fell for the third consecutive day. The benchmark 10-year U.S Treasury yield spiked 4.44% to close at 4.56%, its highest level since mid-November.

Investor sentiment was further dampened by the release on Wednesday of March’s Federal Open Market Committee (FOMC) minutes, which revealed officials’ renewed concerns about inflation.

Crude oil prices, which have been a major inflationary factor, jumped higher. The U.S. benchmark West Texas Intermediate (WTI) rose 1.26% to settle at $86.30 per barrel.

Stocks have been overvalued; the trigger for a correction may have arrived in the form of still-hot inflation.

Editor’s Note: Amid the uncertain investment conditions I’ve just described, don’t ignore cryptocurrency. That’s right…crypto.

As central banks move markets via monetary policy decisions, investors have sought refuge in decentralized assets such as Bitcoin (BTC) and Ethereum (ETH), which are perceived as immune to government manipulation and control.

Additionally, advancements in blockchain technology and decentralized finance (DeFi) have expanded the utility and functionality of cryptocurrencies, attracting a broader audience of investors and users.

Every portfolio should have exposure to crypto. But you need to be informed, to make the right choices. The experts at Investing Daily have done the homework for you.

Want to tap crypto’s massive money-making opportunities? Start receiving our FREE e-letter, Crypto Investing Daily. Click here now!

John Persinos is the editorial director of Investing Daily.

To subscribe to John’s video channel, click this icon: