The US CPI declined as scheduled in April. Does the data give hope that the Fed will cut interest rates? J.P. Morgan analysts say inflation is experiencing a “sweet time” of falling...
At 20:30 Beijing time on Wednesday, the US released CPI data for April. In April, the unseasonally adjusted CPI recorded an annual rate of 3.4%, lower than the previous month's 3.5%, which is in line with market expectations. The monthly core CPI rate fell back to 0.3% as scheduled in April, a new low since December last year. The monthly retail sales rate in the US unexpectedly declined to 0% in April, lower than market expectations of 0.4%.
The monthly rate of the US core CPI cooled down for the first time in 6 months, indicating that price pressure is gradually weakening and supports the Federal Reserve's intention to maintain high interest rates for a longer period of time. Economists believe that the core indicator reflects potential inflation better than the overall CPI.
While these data may give the Federal Reserve some hope that inflation is returning to a downward trend, officials would like to see more data to gain the confidence they need to begin considering cutting interest rates. Federal Reserve Chairman Powell said yesterday that the Federal Reserve will “need to be patient to let restrictive policies work,” and some policy makers don't expect interest rates to be cut at all this year.
After the CPI data was released, futures for the three major US stock indexes rose in the short term. NASDAQ futures rose 0.45%, S&P 500 futures rose 0.46%, and Dow futures rose 0.36%.
Spot gold once jumped 15 US dollars in the short term, and spot silver stood at 29 US dollars/ounce, a new high since April 16. The US dollar index DXY plummeted by nearly 40 points in the short term, and the dollar fell 1.00% against the yen during the day. US 2-10 year Treasury yields fell by more than 10 basis points within a day after the CPI was announced.
US short-term interest rate futures rose after the CPI data was released. The swap market expects the Federal Reserve to cut interest rates faster in 2024, and traders are firm in their bets that the Fed will cut interest rates in September and December. UK interest rate futures are fully priced. The Bank of England cut interest rates by 25 basis points twice before November, which is slightly higher than the 47 basis point rate cut before the data was released.
Analyst Chris Anstey said that the month-on-month increase in core CPI was in line with expectations, and the overall CPI increase was slightly lower than expected. “The Federal Reserve is relieved to see the preliminary data here. They can still claim that the process of falling back in inflation is underway.”
David Kelly of J.P. Morgan Asset Management said “the US economy is moderately slowing,” adding that inflation is experiencing a “sweet time” of falling. He added, “It is possible to cut interest rates in September. ”
Tom Porcelli of PGIM's fixed income company said that while he mainly criticizes Powell, he must acknowledge that Powell has done a good job recently. He said, “The Federal Reserve doesn't need to overreact to every report.” He added that in his opinion, Powell is a US Federal Reserve chairman who wants to cut interest rates.
Rubeela Farooqi (Rubeela Farooqi), chief US economist at High Frequency Economics, said, “Overall, price pressure is still high, but it is moving in the right direction. We believe that the data supports the Fed's patience in future policy decisions, and the basic situation this year is still low interest rates.”
Jeffrey Roach (Jeffrey Roach), chief economist at LPL Financial) said the Federal Reserve is unlikely to start cutting interest rates until there is “more confirmation” that consumer prices are slowing.