On Wednesday, investors will digest one of the most important data points the Federal Reserve will consider in its next interest rate decision: the March Consumer Price Index.
The inflation report, scheduled for release at 8:30 a.m. EDT, is expected to show headline inflation of 3.4%, an acceleration from February's annual price increase of 3.2%, according to Bloomberg estimates. Rising energy costs, fueled by a jump in gas prices, are expected to be the driver behind this increase.
Over the previous month, consumer prices are expected to rise 0.3%, down from the 0.4% monthly increase in February.
On a “core” basis, which excludes the more volatile costs of food and gas, prices in March are expected to rise 3.7% from a year ago — a modest slowdown from the 3.8% annual increase seen in February, according to Bloomberg data. .
“After two confirmed reports to start the year, core CPI inflation should cool in March,” Bank of America economists Stephen Juneau and Michael Jaben wrote in a note to clients on Friday.
Core prices are expected to rise by 0.3% month-on-month in March, compared to the 0.4% increase in the previous month.
Core inflation has remained stubbornly high due to rising costs of shelter and basic services such as insurance and medical care.
But Bank of America expects a slight decline in commodity prices, driven largely by lower prices for new and used cars. The bank also expects lower price pressure from essential services such as airfare and accommodation away from home.
“If our forecasts prove correct, it should provide some confidence for the Fed,” the economists said.
Other economists also see further improvement in core inflation over the year.
“Going forward, we expect monthly core CPI inflation to slow to 0.20-0.25%,” Jan Hatzius, chief economist at Goldman Sachs, wrote on Monday.
“We see further contraction in the pipeline in 2024 from a rebalancing in the auto, rental housing and labor markets,” the economist added.
To cut or not to cut?
Inflation remained above the Federal Reserve's target of 2% on an annual basis. Fed officials have described the path down to 2% as “bumpy.”
It is worth noting that the Fed's preferred measure of inflation, the so-called core personal consumption expenditures price index, has shown a slight slowdown in recent months.
The annual change in core personal consumption expenditures slowed to 2.8% for February, down from 2.9% in January. Federal Reserve Chairman Jerome Powell said the data was “consistent with what we want to see.”
But not all data was supportive of lowering interest rates. Just last week, a strong jobs report showed that the US economy added more jobs than expected in March, as the unemployment rate fell while wage growth remained flat.
Investors now expect just two and a half cuts of 25 basis points this year, down from the six cuts expected at the start of the year, according to Bloomberg data. Former St. Louis Fed President James Bullard said Tuesday that a three-fold rate cut scenario remains the “base case.”
“[The Fed] “He wants to lower interest rates, but the economy is getting in the way,” Stephen Ricciuto, chief economist at Mizuho Securities USA, told Yahoo Finance Live on Tuesday. “The Fed is fighting the economy. In particular, they are fighting American consumers, and that's a fight I don't want to be involved in.”
As of Tuesday afternoon, markets were pricing in a 56% chance that the Federal Reserve would start cutting interest rates at its June meeting. According to CME Group data. This is lower than the 62% probability a week ago.
Alexandra Canal He is a senior reporter at Yahoo Finance. Follow her on X @allie_canal, linkedin, And email it to [email protected].
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