US inflation in March could affect interest rate decision

A new rise in inflation in March in the United States could definitively remove the prospect of an interest rate cut by the Federal Reservethe US central bank, at its June meeting.

Long awaited by the markets, the reduction in interest rates would be a relief for many companies dependent on credit for their development, as well as for consumers. Precisely, the Fed raised its interest rates to make loans more expensive and thus discourage consumption and investment, which put upward pressure on prices.

Now, the increase in consumer prices of 3.5% in the 12 months ending in March, much higher than the 3.2% measurement in February, according to the CPI published this Wednesday by the Department of Labor, is a disappointment for analysts and investors.

In the monthly comparison, inflation was at the same level as in February, 0.4%, but the market was equally disappointed, as it expected a slight moderation to 0.3%, according to the consensus gathered by MarketWatch.

Core inflation, which excludes the most volatile elements, such as energy and food, also leaves specialists disappointed: it remained unchanged in 12 months, at 3.8%, when the market expected it to continue moderating. The same occurs with the monthly measurement, which stood at 0.4%. The markets reacted downward after receiving this data, with the main Wall Street indices – the Dow Jones, the Nasdaq and the S&P 500 – in clear decline in the first operations of the day.

Goodbye to cutting?

”We can say goodbye to a (interest) rate cut in June. (…) The lack of progress towards 2% (which is the central bank’s annual inflation goal) is now the trend,” Greg McBride, chief financial analyst at Bankrate, summarized in a note. “There is no improvement . We are going in the wrong direction (…). The main problem points persist,” he emphasized.

Inflation continues to be pressured by gasoline, housing and transportation prices. On the other hand, food prices, whose evolution is particularly sensitive for consumers, remained unchanged for the second consecutive month.

”The latest data support the hypothesis of a patient approach to monetary policy” by the Federal Reserve, which means that a rate cut is not “imminent,” said Rubeela Farooqi, chief economist of the Federal Reserve. HFE.

Now, nearly 77% of analysts expect rates to remain at their current levels during the Fed’s June meeting. Most expect a cut at the mid-September meeting, a month and a half before the election.

The evolution of prices is a central issue of the electoral campaign between the president, Joe Biden, and the Republican candidate, former president Donald Trump.

Biden focuses his campaign on the success of his economic policy.

”Inflation has decreased compared to its peak” in June 2022, “but there is still much to do to lower costs for families,” the president reiterated like a mantra this Wednesday in a statement after knowing the inflation data for March.

The president called on companies, including supermarkets, to use their “record profits to lower prices.”

The Fed keeps its rates at their highest levels in more than 20 years, in a narrow range of 5.25% to 5.50%.

The central bank and its president, Jerome Powell, have indicated that they hope to begin easing their monetary policy this year. But in recent days, its main leaders have begun to qualify this possibility given the strength of the economy.