Wells Fargo said it now projects two 25 basis points rate cuts in the third and fourth quarter of this year as its base case for the fed funds rate.
Wednesday's CPI data once again, came in hotter-than-expected. Both headline and core CPI rose 0.4%. The investment bank said that although the latter increase was a "low" 0.4% gain, the three-month annualized rate of core CPI inflation climbed to 4.5%, the fastest pace since May 2023.
Despite the acceleration in core prices in Q1, Wells Fargo still expects inflation to trend lower throughout the year, but they feel progress will likely be gradual.
"That said, today's inflation data are likely to keep the FOMC's doves on the defensive while providing more ammunition to the Committee's hawks, who are increasingly of the view that there is no rush to start cutting the fed funds rate," the bank wrote.
Wells Fargo analysts added: "Even if the inflation data cool gradually in the months ahead as we expect, a solid labor market and tranquil financial conditions afford the FOMC more time to await additional data that confirms inflation is on a downward-albeit-bumpy path back to 2%."