A key US price gauge has exceeded forecasts for rent and transportation costs growth.
The mentioned government data, which was released on Wednesday, April 10, is likely to give rise to concerns that inflation in the United States still continues to strengthen and demonstrate something like resilience, while the country’s economic system is keeping powering ahead.
The so-called core consumer price index, which does not include the cost of food and energy, showed an increase of 0.4% in March compared to February. At the same time, on an annualized basis, the specified figure did not change, remaining at 3.8%. This result will be a disappointment for many experts interviewed by the media, as they expected the core consumer price index to show a decline by the result of March.
The government data released on Wednesday has become something of a shock factor for financial markets. Against the background of this information, the dollar exchange rate is ignited. The yield of treasury bonds demonstrated a similar dynamic.
Currently, the expectation among investors is gradually weakening that the Federal Reserve System will soon begin implementing a policy of cutting interest rates. The corresponding sentiment is based on the mentioned government data and is related to the fact that the labor market and economic activity in early 2024 turned out to be stronger than preliminary estimates.
David Kelly, chief global strategist at JPMorgan Asset Management, said in a comment to the media that, against the background of information about the dynamic of the core consumer price index, expectations that the United States financial regulator may start low borrowing costs in June are no longer relevant.
A report from the Bureau of Labor Statistics released on Wednesday indicates that rents, which are one of the main components of the consumer price index, continue to be on a growth trajectory. Experts have long expected a slowdown in the dynamic of the mentioned indicator.
Inflation in the sphere of services in the United States accelerated in March. In this case, the main factors influencing the final result were the situation in sectors such as healthcare, vehicle insurance, and car repair.
As it was above-mentioned, expectations that the US central bank will start cutting interest rates in June have been canceled because the situation in the economic environment is not favorable for making and implementing such decisions. At the same time, before April 10, many traders had not the maximum, but still very significant faith that the easing of the monetary policy of the financial regulator of the United States would begin in the first half of the coming summer. Against the background of new government data, it is most likely that the Fed will start lowering the cost of borrowing in December. At the same time, it is worth noting that a lot can change in more than six months.
Economists Anna Wong and Stuart Paul say that the government data released on Wednesday is likely to signal to the Fed that the pace of disinflation in the United States is slowing down.
It is worth noting that high-interest rates that persist for a long period may also have certain political consequences. The inability to lower the cost of borrowing is likely to become a problematic factor in terms of Joe Biden’s re-election prospects as President of the United States. Continued high-interest rates may provoke an increase in the cost of gasoline, which will become a very sensitive economic circumstance for US residents in the context of their material well-being and personal budget opportunities.
Fed officials will hold a regular policy meeting on May 1. It is likely, that this meeting will not be a surprise. Against the background of government data released on Wednesday, the lowering of borrowing costs shortly is what can be called an unrealistic prospect.
Kathy Jones, Charles Schwab’s chief fixed-income strategist, says that stable inflation in the services sector generates virtually no opportunities for cutting interest rates.
As we have reported earlier, US Job Growth Blows Past Expectations.
