- US core inflation was 3.8% for the month of March while headline inflation was 3.5%.
- The numbers were a further move away from the Federal Reserve’s 2% target.
US Inflation Data
US inflation data went stubbornly higher than anticipated for the month of March. The latest Consumer Price Index (CPI) report of the Bureau of Labor and Statistics (BLS) displayed a year-over-year increase of 3.8% in the cost of goods and services, excluding the volatile prices of food and energy.
The numbers were significantly higher than January’s 3.1% and February’s 3.2% rates. However, the wider picture that includes food and energy prices pushed down the figures to 3.5%, which comes a bit of a reprieve from February’s overall inflation of 3.8%.
Both the core and headline inflation scores were notably 0.1% higher than the expectations of analysts.
Unemployment Rate
Despite the disappointing news, the March labor data of the BLS exhibited a 303,000 increase in employment outside of the farming sector. This represented an improvement from February’s 3.9% unemployment rate to March’s 3.8%.
Interest Rate Cuts
The new CPI report throws a wrench over the much-hoped interest rate cuts by June, which should have given a better breathing room for consumers and businesses. With the figures moving further away from Fed Chair Jerome Powell’s 2% target for a soft landing, there remains an air of uncertainty over the awaited respite from the central bank’s monetary policy in the second half of the year.
The US central bank head, nevertheless, repeatedly emphasized his optimism that the inflation data will eventually move sustainably closer to his magic number of 2%. This promise though is aging quite poorly as the 5.25%-5.50% interest rates have been in place since July last year.
Election Pressure
Amid the frustrating data and the Fed’s insistence of a rate cut only if inflation slows down to Powell’s Goldilocks zone, one major event happening this year could push the hand of the central bank’s board: The 2024 US Presidential Election pitting the incumbent President Joe Biden against former President Donald Trump in the headlines.
As reported earlier, State Street Global Advisors strongly believes interest rate cuts could still occur in June. The $3.6 trillion asset manager estimates the Fed may trim down the existing rates by 50 basis points.
Further slashes may be in store as the pressure of the presidential race heats up on the way to November. With that, State Street forecasts that the country could experience up to 150 basis points cuts until year-end.