Bank of America is reviewing the Federal Reserve’s potential rate cut timetable after March’s Consumer Price Index report beat expectations, marking the third straight month of higher core inflation rates provided that. Although it maintains a preliminary forecast of a rate cut in June, BofA expresses low confidence in this forecast due to continued inflation, particularly in non-housing services and housing costs. March CPI data suggests the start of the Fed’s easing cycle may be delayed, with possible delays extending into December of this year or even March of the following year.
Key points:
- Persistent underlying inflation: March CPI data revealed continued inflation, with core CPI recording a 0.4% month-on-month increase for the third consecutive month.
- The Fed’s speech on inflation called into question: The report challenges the Fed’s supply-side narrative and expectations of rapid disinflation, particularly given persistent housing sector inflation and the potential re-acceleration of non-housing services.
- Uncertain rate reduction timetable: BofA maintains its expectation of a rate cut in June, albeit with diminished confidence. The March CPI report increases the likelihood of a delay in the Fed’s easing cycle.
Conclusion: The indication of lingering inflationary pressures in the March CPI report complicates the Federal Reserve’s path toward launching its easing cycle, potentially postponing rate cuts beyond the period originally planned for June. As inflation proves more persistent than expected, particularly in housing and non-housing services, BofA’s confidence in a June rate cut is tempered, highlighting the need for additional data to assess the trajectory of inflation and, therefore, the timing of monetary policy adjustments.
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