Source: Wall Street News
Wall Street analysts said that even if the April inflation data does not allow the Federal Reserve to cut interest rates in July, it is enough to cut interest rates starting in September. However, some analysts are conservative and believe that retail sales data falling short of expectations may be a major hidden danger, indicating that the Federal Reserve needs to obtain more evidence before taking action.
According to data released by the US Bureau of Labor Statistics on Wednesday, the US CPI increased 3.4% year on year in April, flat expectations, slightly down from the previous value of 3.5%; in April, CPI increased 0.3% month-on-month, lower than the forecast and the previous value of 0.4%. Excluding food and energy costs, the core CPI growth rate in April fell to 0.3% from 0.4% in March, the first decline in 6 months, and remained flat at 0.3%.
After the report was released, Wall Street analysts said one after another that this CPI data opened the door for the Federal Reserve to cut interest rates. It is widely believed that the April inflation data would not allow the Fed to cut interest rates in July, but it would be enough to cut interest rates starting in September.
Here are some active Wall Street economists and strategists first reacted to the CPI data after it was released.
Kathy Jones, chief fixed income strategist at Charles Schwab, said:
“This really opens the door for potential interest rate cuts later this year. Of course, before the Federal Reserve takes action, more readings are still needed to show that inflation is falling.”
Neil Birrell, Chief Investment Officer of Premier Miton Investors, said:
“The everyday excitement surrounding US inflation ultimately proved to be a lackluster event, as the results were completely in line with expectations. However, retail sales data are weaker than expected, and the core inflation rate has returned to a level not seen for quite some time. This may cause optimists to call for interest rate cuts, and the market may rebound as a result.”
Capital Economics analysts said:
“The core CPI is even better than it seems, especially considering that we already know that the PPI component of the PCE inflation measurement preferred by the Federal Reserve was generally lower than expected. We estimate core PCE to grow by around 0.20% month-on-month. Taken together, this is in line with the expectation that the Federal Reserve will cut interest rates in September.”
David Russell, Director of Global Market Strategy at TradeStation:
“Housing costs have not declined as expected, but there have been improvements in transportation and health care. That number isn't perfect, but we are gradually moving towards lower inflation. Weak retail sales data and the New York Federal Reserve manufacturing index also indicate that growth is slowing, which preserves the possibility of interest rate cuts. This is triple positive news.”
Florian Lepo from Lombard Odier Asset Management:
“With this inflation data in line with expectations, interest rates are likely to be lowered by real interest rates and fall below 4.4%. A depreciation of the dollar will follow, which will support most assets denominated in dollars.”
Rubeela Farooqi, Chief American Economist at High Frequency Economics:
“Overall, price pressure is still high, but it's moving in the right direction. We believe this data supports the Fed's patience in future policy decisions, although the basic situation is that interest rates will be lowered this year.”
Gregory Faranello, Head of American Interest Rates at AmeriVet Securities:
“Overall, these data are friendly to the Federal Reserve, whether it's CPI or retail sales figures. Both showed a moderate trend, which is what the Federal Reserve is hoping to see. These numbers may support moving Powell's 'higher interest rates longer' to a lower level.”
However, there are also analysts who are conservative and believe that retail data falling short of expectations may be a major hidden danger. Ira Jersey, head of Bloomberg's interest rate department, said:
“The market's reaction to the apparent slowdown in retail sales is likely to be greater than expected CPI. Sales data tend to lead product CPI by several months. Although the CPI report is in line with expectations, it highlights that the low volatility core CPI sector continues to contribute close to a 4% year-on-year increase, while the high volatility sector (currently usually the commodities sector) contributed little to nothing. As a result, although the data is generally in line with expectations, inflation is still above the Fed's comfort level, which means it is unlikely that interest rates will be cut in the short term.”
Wall Street Journal reporter Nick Timiraos, known as the “New Federal Reserve News Agency,” said:
“One good piece of data can't offset three bad ones. Officials may need a few more months to recover from the first quarter's inflationary PTSD. Of course, this reduces the risk of shifting to a neutral bias, such as the possibility of starting interest rate hikes.”
editor/tolk