(Reuters) – The greater than expected rise in consumer prices in the United States in March removes the prospect of a rate cut for the markets, which are suddenly repositioning.
Over one month, the consumer price index (CPI) posted growth of 0.4% in March after a similar increase the previous month, the Labor Department announced on Wednesday. Over one year, it stands at 3.5%, after a gain of 3.2% in February.
Economists polled by Reuters on average forecast growth of 0.3% for the month of March and 3.4% year-on-year.
The underlying CPI index, which excludes the volatile prices of energy and food products, reached +0.4% over one month, compared to a similar increase in February and a consensus of 0.3%. .
Over one year, the underlying CPI index grew by 3.8% after a similar pace in February, and against a consensus of 3.7%.
The surprise came from inflation in “supercore” services, which exclude services related to energy and housing, as well as rising energy prices which supported headline inflation.
Markets are now only betting on 44 basis points of easing in 2024, less than two rate cuts, the first of which would take place in September.
“Inflation is far too high for the central bank to be comfortable with,” note ING strategists.
“A decline in June will not happen unless the economic situation is reversed.”
The latest employment figures were much better than expected, as the Federal Reserve warned that a slowdown in employment could justify easing rates.
However, the central bank had already previously indicated that it expected a period of more volatile and higher inflation.
The Fed could therefore choose to wait for the next data which will be published in April and May, or insist that a single rate cut does not necessarily mean the start of significant easing.
“Political factors and its commitment are likely to influence the decisions of the American central bank, and “a cut and we will see” should become the Fed’s new line of communication,” believes Florian Ielpo.
REPOSITIONING
The prospect of restrictive rates for longer puts pressure on bonds and stocks, and supports the dollar.
At 2:02 p.m. GMT, the ten-year Treasury yield jumped 12.9 bp to 4.4947%, while the two-year soared 20.9 bp to 4.9561%.
The dollar strengthened by 0.88% against a basket of reference currencies, while the equity indices showed a sharp decline.
(Written by Kate Entringer, Corentin Chappron)
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