Instant View: Hot March US CPI may stay Fed’s hand on June cut

NEW YORK (Reuters) – U.S. consumer prices increased more than expected in March amid rises in the costs of gasoline and shelter, casting further doubt on whether the Federal Reserve will start cutting interest rates in June.

The consumer price index rose 0.4% last month after advancing by the same margin in February, the Labor Department said on Wednesday. Gasoline and shelter costs, which include rents, accounted for more than half of the increase in the CPI.

In the 12 months through March, the CPI increased 3.5% also as last year’s low reading dropped out of the calculation. That followed a 3.2% rise in February.

MARKET REACTION:

STOCKS: U.S. stock index futures turned 1.31% lower

BONDS: U.S. Treasury yields surged after the data, with 2-year note last at 4.935%, and the 10-year note at 4.497%FOREX: The dollar index turned 0.56% higher

COMMENTS:

MICHAEL BROWN, MARKET ANALYST, PEPPERSTONE, LONDON

“A clearly concerning CPI report for the FOMC this afternoon, with headline CPI printing hotter than expected for the third time this year, while core inflation remains sticky being unchanged on both an MoM and a YoY basis.”

“Disinflation progress remains significantly slower than FOMC policymakers would like to see. While there remain two further CPI, and an additional two PCE, reports before the June FOMC, this data clearly tilts the balance of risks in favor of a delayed start to the easing cycle, and fewer rate cuts, with USD OIS (overnight indexed swap) now implying just 50bp of easing this year.”

“On a broader level, data of this ilk is likely to see the USD continue to gain ground, as risks to the FOMC outlook tilt in an increasingly hawkish direction, while G10 peers look to begin their easing cycles as soon as June.”

BRIAN JACOBSEN, CHIEF ECONOMIST, ANNEX WEALTH MANAGEMENT, MENOMONEE FALLS, WISCONSIN“Core inflation has been stuck at 0.4%. Yes, that’s better than it used to be, but double what it needs to be. The services effect isn’t just shelter. There’s been a wedge between food at home and food away from home, partially reflecting the rising costs of rents, utilities, and labor for businesses. A June rate cut isn’t only off the table, it’s probably not even on the menu.”

ROBERT PAVLIK, SENIOR PORTFOLIO MANAGER, DAKOTA WEALTH, FAIRFIELD, CONNECTICUT”Data was hotter than expected, both on the top line and the core number, and that’s driven futures down because it’s indicative of sticky inflation and the potential for the Fed to either cut fewer times or not at all in 2024.”

“I don’t think it speaks to the need for a rate hike, but stocks have to be repriced for a different environment which is presenting itself with these inflationary data.”

(Compiled by the Global Finance & Markets Breaking News team)