The US Bureau of Labor Statistics has announced that the Consumer Price Index (CPI) for April had a year-on-year increase of 3.4%, in line with market expectations. This data indicates that prices and economic activity have not accelerated further, putting an end to the four consecutive higher-than-expected figures.
Following the release of the CPI report, market expectations for a rate cut by the Federal Reserve have started to be reevaluated. According to data from FedWatch, the probability of a rate cut by the Federal Reserve before July is 32%, while the probability before September is as high as 73.8%. This positive news has also brought upward momentum to the US stock market and cryptocurrencies.
However, Nick Timiraos, a Wall Street Journal reporter known as a mouthpiece for the Federal Reserve, pointed out in his latest report that the April CPI report itself is not enough to change the Fed’s expectations of whether and when to start cutting rates. He further stated that the significance of the April CPI data lies in its preservation of the possibility of rate cuts this year, soothing concerns that the Fed may need to reopen the “door of rate hikes.”
Nick Timiraos expects that Federal Reserve officials may need two additional CPI reports to strengthen their confidence in inflation returning to levels before the COVID-19 pandemic, so the Fed may not cut rates before September.
