On the 10th local time, the United States will release March Consumer Price Index (CPI) data.
Although the Federal Reserve's interest rate meeting last month maintained its expectation of three rate cuts within the year, economic resilience, price pressures, and the statements of Federal Reserve officials have made the prospect of easing less clear. Therefore, the latest inflation report may become an important reference for whether the Federal Reserve can usher in a policy turning point in the first half of the year.
Short term inflation rebound or end
Since the beginning of this year, the US CPI has slowly rebounded.
According to the latest forecast from institutions, inflation data in March is likely to continue to accelerate, with CPI rising by 3.5% year-on-year and 0.3% month on month. Fuel prices will continue to be an important driver. Driven by the Russia-Ukraine conflict, OPEC+production reduction and the prospect of economic recovery, international oil prices in the first quarter rose by nearly 20%. According to AAA data, the average gasoline price in the United States at the end of March has risen to $3.50/gallon, up more than 7% from the beginning of the month. It is worth noting that with the arrival of a consumer boom and limited refinery capacity, oil prices are expected to rise above $4 this summer.
Meanwhile, the uncertainty surrounding the components of housing rent will continue. In January of this year, the US Department of Homeland Management adjusted its weighted index, making single family homes more important now, and rental prices for such homes are rising faster than apartments. Dutch International Group (ING) predicts that due to the adjustment in the calculation method of the index, it may take several months for the impact to ease.
Excluding energy and food, it is expected that the core CPI growth rate will drop to 3.7%, a 0.1 percentage point decrease compared to the previous month. However, the upward trend of factors such as insurance costs and medical prices will continue to create pressure on super core inflation (excluding core services outside of housing).
For the Federal Reserve, the trend of super core inflation will be the key to future policy shifts. Despite a slowdown in consumer spending since the beginning of this year, household consumption is still supported by a tight labor market. Based on the latest indicators such as non farm payroll, initial unemployment benefits, and JOLTS job vacancies, the demand for employment in enterprises remains strong, thus supporting healthy salary growth for employees.
It is worth noting that the Cleveland Federal Reserve's inflation model shows that the overall rebound in US prices is expected to end in March, while core inflation is still quite far from the mid-term target of 2%, and the rate of decline is relatively limited, which may pose some resistance to future policy shifts.
The Federal Reserve's stance tends to be cautious
Since early April, combined with the resilience of the US economy and the lingering inflationary pressure, federal funds rate futures have significantly tightened their loose pricing for this year.
According to a summary by First Financial reporters, there has been no progress in discussing the timing of interest rate cuts within the Federal Reserve. Federal Reserve Chairman Powell's stance is relatively moderate. He has repeatedly stated that recent data on employment growth and inflation have not substantially changed the overall situation: stable economic growth, strong but rebalancing labor markets, and prices falling by 2% on sometimes bumpy roads.
However, Powell reiterated that policy interest rates will not be lowered until confidence in inflation continuing to fall to 2% increases. His views have also been endorsed by several members, including Philadelphia Fed Chairman Huck and Richmond Fed Chairman Barkin.
Oanda Senior Market Analyst Craig Erlam said in an interview with First Financial reporters that service industry prices are still rising, and commodity deflation is turning. The Federal Reserve does need to re-examine potential changes in future inflation paths.
In contrast, the hawkish statements of some Federal Reserve officials have attracted widespread attention. Minneapolis Federal Reserve Chairman Kashkali warned last week that if inflation stagnates, the Federal Open Market Committee (FOMC) may not be able to lower interest rates at all this year. It is worth mentioning that Federal Reserve Governor Bauman even sent a signal that interest rate hikes cannot be ruled out.
Bob Schwartz, senior economist at the Oxford Institute of Economics, told First Financial that economic resilience gives the Federal Reserve reason to wait longer before interest rate cuts. He believes that the Federal Reserve still tends to lower interest rates this year, but the labor market and price recovery have become obstacles; Quota; Lowering interest rates does not necessarily require significant issues in the labor market, as it may imply economic risks, and what the Federal Reserve needs to confirm is that prices are being brought back under control& Amp; Quota;
Erram believes that it is still possible for the Federal Reserve to initiate interest rate cuts in the first half of the year, provided that data for the next two months can recover to& Quota; Soft landing mode; Quota—— Moderate economic cooling and labor market balance. Although the risk of premature policy shift has been frequently mentioned recently, the lag in the economic impact of long-term interest rates at restricted levels cannot be ignored.