For two consecutive months, inflation rates higher than anticipated have all but eliminated the chance of the Federal Reserve reducing interest rates before June. Furthermore, the prospect of consecutive rate decreases later in the year is becoming increasingly slim. The rise in gasoline and shelter costs contributed to a 3.2% year-over-year increase in the February consumer price index, marking an uptick from January’s 3.1%. While core inflation, which excludes gas and food prices, decreased less than expected, it showed more momentum over the past three and six months. This sustained inflationary pressure is unlikely to influence the Federal Reserve’s decision in the upcoming week to maintain the policy rate between 5.25% and 5.5%, a range established since the previous July.
Given the recent inflation figures, it’s improbable that enough data will be available by the Federal Reserve’s April 30-May 1 meeting to confidently suggest inflation is moving towards the Fed’s 2% target. Analysts are now doubting the feasibility of more than a minimal number of rate cuts throughout the year. The inflation report from Tuesday has been described as troubling and suggests that the restrictive monetary policy hasn’t fully impacted the economy yet, necessitating a continued cautious and slightly hawkish stance from the Fed. With inflation rates remaining high, forthcoming quarterly projections from the Fed might indicate only two quarter-point rate reductions this year, a decrease from the three anticipated in December. Despite this, traders in futures markets still largely anticipate a rate cut by June, although expectations for the total number of cuts by year’s end have been slightly adjusted.
