On Wednesday, investors will analyze the March Consumer Price Index (CPI), one of the most important data points the Federal Reserve will consider in its next interest rate decision.
The inflation report, scheduled to be released at 8:30 a.m. ET, is expected to bring headline inflation to 3.4%, accelerating from February's annual price rise of 3.2%, according to Bloomberg estimates. Rising energy costs due to soaring gas prices are expected to be the driving force behind the increase.
Consumer prices are expected to rise 0.3% last month, slowing from February's 0.4% month-on-month rise.
On a “core” basis, which excludes more volatile food and gas prices, prices are expected to rise 3.7% year-on-year in March, slightly down from February's 3.8% annualized rise, according to Bloomberg data. It is said to be slowing down. .
“After two solid reports to start the year, core CPI inflation should subside in March,” Bank of America economists Stephen Juneau and Michael Geipen said in a note to clients on Friday. ” he said.
Core prices are expected to rise 0.3% on a monthly basis in March, compared with a 0.4% rise in the previous month.
Core inflation remains high due to rising costs of core services such as shelter, insurance, and health care.
However, Bank of America expects core goods prices to decline slightly, primarily due to lower new and used car prices. The bank also expects pricing pressure from core services such as flights and away-from-home accommodation to ease.
“If our predictions prove correct, that should give the Fed some confidence,” the economists said.
Other economists also see further improvement in core inflation throughout the year.
“Going forward, we expect monthly core CPI inflation to moderate to 0.20-0.25%,” Goldman Sachs chief economist Jan Hatzius said on Monday.
“We expect further disinflation in 2024 due to rebalancing in the auto, home rental and labor markets,” the economist added.
To cut or not to cut?
Inflation remains above the US Federal Reserve's annual target of 2%. Fed officials classify the path to 2% as “steep.”
Notably, the Fed's preferred inflation measure, the so-called core PCE price index, has shown some cooling in recent months.
The year-on-year growth in core PCE in February was 2.8%, slowing from 2.9% in January. Federal Reserve Chairman Jerome Powell said the statistics were “in line with what we want to see.”
But not all the data supports a rate cut. Just last week, strong labor data showed the U.S. economy added more jobs than expected in March as the unemployment rate fell and wage growth remained strong.
Investors now expect only two and a half cuts of 25 basis points this year, down from the six cuts expected at the beginning of the year, according to Bloomberg data. . Former St. Louis Fed President James Bullard said Tuesday that the three rate cut scenario remains the “baseline scenario.”
”[The Fed] “The Fed wants to cut rates, but the economy is getting in the way of that,” Stephen Ricciuto, chief economist at Mizuho Securities, said Tuesday on Yahoo Finance Live.”The Fed is fighting the economy, especially They're fighting against the American consumer, and I don't want to be a part of that.”
As of Tuesday afternoon, markets were pricing in a 56% chance that the U.S. Federal Reserve would start cutting interest rates at its June meeting, according to CME Group data. That's down from 62% a week ago.
alexandra canal I'm a senior reporter at Yahoo Finance. Follow her on X @allie_canal, LinkedIn, Email alexandra.canal@yahoofinance.com.
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