NEW YORK (Reuters) - U.S. consumer prices increased more than expected in March amid rises in the costs of gasoline and shelter, casting further doubt on whether the Federal Reserve will start cutting interest rates in June.
The consumer price index rose 0.4% last month after advancing by the same margin in February, the Labor Department said on Wednesday. Gasoline and shelter costs, which include rents, accounted for more than half of the increase in the CPI.
In the 12 months through March, the CPI increased 3.5% also as last year's low reading dropped out of the calculation. That followed a 3.2% rise in February.
MARKET REACTION:
STOCKS: U.S. stock index futures turned 1.45% lower
BONDS: U.S. Treasury yields surged after the data, with 2-year note last at 4.95%, and the 10-year note at 4.503%
FOREX: The dollar index turned 0.74% higher
COMMENTS:
BRAD CONGER, CHIEF INVESTMENT OFFICER, HIRTLE CALLAGHAN & CO, WEST CONSHOHOCKEN, PENNSYLVANIA
“The market had to readjust given this information because this told us the January and February numbers were not quite just seasonal.
“We could get this back on track, but this is not what Powell wanted to hear, you know? Powell said over and over again we need to build confidence in the trend of inflation.
“This just is not inspiring confidence. I don't know how you can spin it any other way.
“The decision to pivot in November and December I think now we can say was a mistake, meaning by doing so he created a lot of financial easing, which is just like cutting.”
CAMERON DAWSON, CHIEF INVESTMENT OFFICER, NEWEDGE WEALTH, NEW YORK
“The numbers came in hot which is causing equity futures to drop quite sharply and bond futures for yields to shoot higher effectively pricing out the pivot of the Fed.
"The key point here is that the Fed has looked through January and February data being hot, saying that it was just a blip or a bump in the road in the past to continue this inflation. However, now that you have a third month, it makes it much harder for the Fed to ignore.
"There is a high-risk cutting rates in June gets pushed out further. The probability is likely going to move lower after today's print, meaning that a June cut is less likely. It's important because June is the kind of last window for them to cut before the election. However, this data doesn't necessarily support them.”
BEN VASKE, SENIOR INVESTMENT STRATEGIST, ORION, OMAHA, NEBRASKA
“Year-over-year CPI has once again come in hotter than anticipated. Today’s reading marks inflation at its highest level since last September, fortifying recent Fed speak trying to tame investors’ rate cut expectations. While cuts are certainly still on the table for 2024, today’s data could be a key data point in pushing out pivot timing even further.”
OLIVER PURSCHE, SENIOR VICE PRESIDENT, WEALTHSPIRE ADVISORS, NEW YORK
“The report confirms the Fed’s concerns that the stronger-than-expected economy could cause a resurgence in inflation this spring and summer and will undoubtedly delay any rate cuts.”
“I think a July rate cut is still possible. There are several key data points that will be coming in before then, but I would be surprised if A) there was a June cut and B) if there will be more than two cuts this year.”
“And you’re seeing that reflected in the spike in yields and Treasury markets right now.”
JOSEPH LAVORGNA, CHIEF U.S. ECONOMIST, SMBC NIKKO SECURITIES, NEW YORK
“The core rate of inflation has accelerated four months in a row… maybe you get some moderation later in the year but given the fact you're starting from a higher rate, you're going to need real weak numbers and more time to be convinced that inflation is trending back down after what appeared to be the case last fall. What that means is the timing of Fed easing is going to get pushed out.
“Maybe you get a couple of cuts, but it's going to have to be in the back half of the year. These are bad inflation numbers.”
PHIL BLANCATO, CHIEF EXECUTIVE OFFICER, LADENBURG THALMANN ASSET MANAGEMENT, NEW YORK
"The base case for cutting rates just is not there with inflation, unfortunately, being stickier. It looks to me like you can't even rule out the potential for an increase again or these conversation around it, simply because we're just not getting to the mandate that the Federal Reserve wants."
MICHAEL LORIZIO, SENIOR FIXED INCOME TRADER, MANULIFE INVESTMENT MANAGEMENT, BOSTON
“I think we’re now going to have to search everywhere for new support levels because this is obviously a pretty big game changer in terms of pricing in expectations of a Fed cut in June, and you’re seeing the odds of that being immediately reduced and pushed out even further than they had been previously.”
“I guess we do have to have some patience and the fact that the Fed has said they need more time and they need to see months of data before making a decision either way, but for sure this pushes us into the way of thinking that those months of data that they were anticipating getting is not sufficient, and they’ve been quite clear that if the data doesn’t support it then they won’t ease policy.”
“Right now, I think the shift will be from looking at this to PPI tomorrow and then seeing what everyone’s PCE forecast will be, that is their preferred measure, so we’ll see how that stacks up.”
ART HOGAN, CHIEF MARKET STRATEGIST, B RILEY WEALTH, BOSTON
“The anticipation of this number was for it to come in a bit hot and it did. It came in one tick higher across the board, whether it's on a MoM or YoY basis. That's not a massive difference, but it's enough to continue the conversation around when and if the Fed’s going to cut rates and it likely pushes out the first rate cut by at least a month, to perhaps July.”
KENNETH MAHONEY, PRESIDENT, MAHONEY ASSET MANAGEMENT, WINTER GARDEN, FLORIDA
"It came in a hotter than expected. This definitely pushes back the Federal Reserve which is why the market is having a convulsion right now. This is a pretty big downturn."
"Every part of this report so far is hotter than expected. Oil and gas prices going up this past month also had something to do with this. We were hoping for tamer numbers and a Fed cut."
"The Fed has no reason to cut rates when we are still battling inflation – that’s the realization."
"Most investors are going to write off June as a rate cut possibility with these numbers coming hotter than expected."
MICHAEL BROWN, MARKET ANALYST, PEPPERSTONE, LONDON
"A clearly concerning CPI report for the FOMC this afternoon, with headline CPI printing hotter than expected for the third time this year, while core inflation remains sticky being unchanged on both an MoM and a YoY basis."
"Disinflation progress remains significantly slower than FOMC policymakers would like to see. While there remain two further CPI, and an additional two PCE, reports before the June FOMC, this data clearly tilts the balance of risks in favor of a delayed start to the easing cycle, and fewer rate cuts, with USD OIS (overnight indexed swap) now implying just 50bp of easing this year."
"On a broader level, data of this ilk is likely to see the USD continue to gain ground, as risks to the FOMC outlook tilt in an increasingly hawkish direction, while G10 peers look to begin their easing cycles as soon as June."
BRIAN JACOBSEN, CHIEF ECONOMIST, ANNEX WEALTH MANAGEMENT, MENOMONEE FALLS, WISCONSIN“Core inflation has been stuck at 0.4%. Yes, that's better than it used to be, but double what it needs to be. The services effect isn't just shelter. There's been a wedge between food at home and food away from home, partially reflecting the rising costs of rents, utilities, and labor for businesses. A June rate cut isn't only off the table, it's probably not even on the menu.”
ROBERT PAVLIK, SENIOR PORTFOLIO MANAGER, DAKOTA WEALTH, FAIRFIELD, CONNECTICUT"Data was hotter than expected, both on the top line and the core number, and that's driven futures down because it's indicative of sticky inflation and the potential for the Fed to either cut fewer times or not at all in 2024."
"I don't think it speaks to the need for a rate hike, but stocks have to be repriced for a different environment which is presenting itself with these inflationary data."