2024-04-11 14:58:35
Have hopes of a US interest rate cut in 2024 dashed after inflation rises?
Most analysts ruled out the Federal Reserve cutting US interest rates at its next June meeting, after an index showed Consumer pricesYesterday, Wednesday, they rose more than expected during the month of March, bringing to the surface skepticism that had not existed before about the possibility of any reduction in interest rates before the end of the current year.
Price inflation in the United States, represented by the Consumer Price Index, showed clear stubbornness, after it rose by 3.5% in March compared to last year’s prices, which exceeded the expectations of analysts who had expected an increase of no more than 3.2%. Consumer price data issued by the US Department of Labor was considered new evidence of the continued stubbornness of inflation, and increasing prospects delay Fed start cycle Reducing interest rateswhich will be the first since the pandemic year.
Today, Thursday, data from the Ministry of Labor showed that the producer price index (wholesale) rose less than expected in March, which increased the uncertainty of the scene in the largest economy in the world, and complicated the Federal Bank’s mission regarding monetary policy in the country during the coming period. Before announcing the wholesale price data, the giant investment bank Goldman Sachs maintained its expectations of a decline in inflation in the United States in the coming months, despite the emergence of signs in the markets that investors are reducing their bets on lowering interest rates before the second half of the year.
Successive reports shook investor confidence and pushed stock and bond markets to decline after the benchmark ten-year bond yield rose above 4.55% for the first time since mid-November. Traders are now anticipating the first interest rate cut from the US Central Bank in September, after months of waiting for it before the middle of the current year, and anticipating a comprehensive easing of policies that have prevailed for more than two years. Goldman Sachs expected the consumer price index reading in the United States to decline to 2.4% this year, compared to the current annual rate of 3.5%.
“The problem is that you have certain parts of the inflation basket right now that keep pushing things up,” Christian Müller-Glesmann, head of asset allocation research at Goldman Sachs, told CNBC on Thursday. He added: “Last month, it was transportation, obviously oil prices are rising now, and this is definitely something that is a little stronger than we initially expected.” He stressed that the inflationary impact of high oil prices will likely be limited, because the bank expects that the Organization of the Petroleum Exporting Countries will eventually provide excess capacity.
Mueller-Glesman considered that the return of wage inflation to normal was one of the main reasons behind Goldman Sachs’s expectation of a decline in inflation in the United States. On this point, Glesman acknowledged that there are “more question marks” for the United States than for Europe when it comes to wage normalization. “But we still say that a lot of the high job indicators, for example, in the United States, are declining. So, the labor market is still slowing down, and hopefully that will allow wage inflation to come down a little bit,” he added.
Last month, the US Central Bank kept interest rates unchanged for the fifth time in a row, as was expected, and kept the base interest rate on overnight borrowing in a range between 5.25% and 5.5%. At the time, the bank said it still expected cuts of three-quarters of a percentage point by the end of the year. The March CPI report raised concerns about inflation holding at a (relatively) high level, bringing to mind the dovish tone of some Fed policymakers that we heard several weeks ago.
Speaking late last month, Fed Governor Christopher Waller said there was “no rush” to cut the US central bank’s interest rate to normalize policy. Separately, Atlanta Fed President Rafael Bostic said two weeks ago that he now expects only one quarter-point rate cut this year, compared to the two cuts he previously expected. “We’ve gone from moderate optimism in the fourth quarter to flirting with reflation since the beginning of the year, and I think so far it’s been pretty good,” he said.
Müller-Glesmann said: “I think that the markets dealt acceptablely in light of the shift away from low inflation and the expectation of many interest rate cuts, after inflation stabilized and interest rate cuts were postponed.” Regarding the main reason behind this happening, he said, “It is clear that it was the strong growth of the economy.” He added: “Growth has actually been remarkably good. I’m talking about the corporate sector, especially in the US where earnings have been good, but also the manufacturing sector, which is starting to recover, and consumer spending. It’s really important that growth continues to be strong.”
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