The Consumer Price Index in the United States rose by 3.5% in March, far from the Federal Reserve’s target and marking its sixth consecutive monthly increase. This trend has dampened hopes that the U.S. central bank might start lowering its interest rates in the near future.
The latest U.S. inflation data has poured cold water on predictions that the Federal Reserve (Fed) would begin to reduce its interest rates in June. Currently, rates fluctuate between 5.25% and 5%, touching the highest level in over two decades.
The Department of Labor disclosed that the annual inflation rate for March was 3.5%, with several significant milestones ahead: it has accelerated for the sixth consecutive month, is three-tenths higher than February’s rate, and has exceeded market expectations for the third month in a row. The central bank aims for a 2% rate.
For the stock market, the message is clear: the Fed will take longer than expected to start lowering its interest rates. Indeed, many who went to sleep on Tuesday thinking rates would start to drop by mid-year are now almost certain that this will not happen before September, if at all.
The Fed began raising its interest rates two years ago to increase the cost of borrowing for households, aiming to curb sharp price increases. However, it still does not trust that it has achieved its goal sufficiently to alter its course.
President Joe Biden, who has echoed that inflation has decreased from an annual rate of 9% to just over 3% in less than two years, still believes that there will be rate cuts this year.
“I maintain my prediction that there will be a rate cut before the end of the year, this (inflation data) might delay it by about a month. I’m not certain of that, we don’t know, we can’t be sure what the Federal Reserve will do.”
A Predicted Stagnation
This Wednesday, April 10, also saw the release of the Federal Reserve’s minutes, a market-relevant document that details the positions of the various committee members who decide on interest rates during their most recent meeting.
This document had already indicated that inflation was probably worsening, even before the government reported that price increases had accelerated again last month.
According to the minutes from the meeting on March 19 and 20, the 19 officials generally agreed that the high inflation readings from January and February “had not increased their confidence” that inflation was consistently falling toward their annual 2% target.
In light of the most recent data, with the market tempering its bets on an interest rate reduction, it’s possible that sooner or later, American consumers will begin to see lower interest rates reflected in loans covering everything from credit cards to cars and homes.