US inflation had another hot month in March, rising 3.5% – the latest data casting doubt on when the Federal Reserve will actually start cutting interest rates as early as June.
This is the largest year-on-year increase since December 2023, when the inflation rate stood at 3.4%.
The March consumer price index – a measure of changes in the costs of everyday goods and services – was slightly above the headline inflation figure of 3.4% expected by economists surveyed by FactSet, and slightly increased from 3.2% in February.
The figure is likely to come as some comfort to Fed officials, who reiterated that they are working to rein in inflation to 2% – a figure the US economy has not seen in more than a decade.
When inflation persists as it has in recent months despite the benchmark federal funds rate, currently the highest in 22 years, the Fed has traditionally raised interest rates even more in an effort to slow the inflation. economy.
Fed officials have already said a rate cut may no longer be feasible for 2024.
“If we continue to see inflation moving sideways, it would make me question whether we really need to make these rate cuts,” Federal Reserve Bank of Minneapolis President Neel Kashkari said in a statement. interview last week already reported by CBS.
A day later, Fed Governor Michelle Bowman said Friday that interest rates could even rise.
“While this is not my baseline outlook, I continue to see the risk that at a future meeting we may have to raise the policy rate further if inflation progress stagnates or even reverses,” said Bowman in prepared remarks to a group of Fed observers. in New York on Friday.
“Cutting our policy rate too soon or too quickly could lead to a rebound in inflation, which would require further future policy rate increases to bring inflation back to 2% in the long term,” she added, according to CNBC.
The surprisingly resilient March jobs report – which beat economists’ expectations and said employers added 303,000 jobs last month – was also not very helpful in the timing of job cuts. rate.
Historically, a strong labor market keeps wages and consumer spending high, fueling inflation and interest rates, which Wall Street widely expects Fed officials to cut three times – by 0.75 cumulative percentage points – by the end of the year.
The latest economic data clouds the path forward, especially after Fed Chairman Jerome Powell said ahead of the CPI release that central bankers will “let the incoming data guide our policy decisions.”
In the same remarks Powell prepared for an audience at the Stanford Graduate School of Business last week, he added that interest rates could begin to fall once inflation subsides.
However, data released Wednesday by the Bureau of Labor Statistics showed that on a monthly basis, price growth increased 0.4% on a monthly basis, mainly driven by housing and gasoline, which contributed to more than half of the increase.
The auto insurance, medical care, clothing and personal care indexes also contributed to the increase.
The indexes for used cars and trucks, recreational vehicles and new vehicles fell, and the food index increased only 0.1% in March.
The core CPI – a figure that excludes volatility in food and energy prices – remained stable from February, at 3.8%.
That figure — which is a key indicator of underlying inflation — was also higher than the 3.7% expected by economists surveyed by FactSet.
The latest CPI data means consumer prices still haven’t fallen year-over-year since President Joe Biden’s term began in January 2021.
The economy has never been closer to an annual decline since Biden took office than in July 2022, when the inflation rate remained “unchanged” at a dizzying 8.5%.
New York Post
