Traders slashed bets on imminent Federal Reserve rate cuts on Wednesday after data showed US inflation rose to 3.5 per cent in March, surpassing expectations and marking the second increase in a row.
The annual consumer price index (CPI) figure compared with expectations of a 3.4 per cent rise, according to economists polled by Bloomberg, while the core number was also greater than forecast.
CPI had previously risen to 3.2 per cent in February from 3.1 per cent in January.
Bond yields jumped and stock futures sank after the data release.
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Futures traders drastically lowered rate cut expectations, pricing in between one and two quarter-point cuts this year, compared with six or seven at the beginning of January.
Before the inflation figures were published, markets had expected between two and three cuts this year.
Traders had also previously seen a July cut as a near certainty, but reduced their bets on that timing from about 98 per cent to 58 per cent after Wednesday’s report was released.
The two-year Treasury yield, which moves with interest-rate expectations, jumped by 0.19 percentage points to 4.9 per cent.
S&P 500 futures fell 1.5 per cent.
“Even if the Fed’s policy pivot toward cutting interest rates is still on the table for 2024, recent data have greatly complicated the task of finding the right time for a move that avoids constraining growth while also not prematurely declaring victory against inflation,” said Eswar Prasad, economics professor at Cornell.
The Bureau of Labor Statistics added on Wednesday that core inflation, which excludes changes in food and energy costs, remained at 3.8 per cent, the same rate as February.
Economists had expected a core rate for March of 3.7 per cent.
The benchmark federal funds target range is currently set at 5.25 to 5.5 per cent – the highest since 2001 – in an attempt to rein in inflation. – Copyright The Financial Times
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