The US inflation data for April was slower than last month, which gave some market participants renewed hope that inflation would continue to cool down. After the data was released, the US dollar index and US bond yields dived, and US stock futures rose.
Consumer prices rose 0.3% in April, falling short of expectations. The CPI will increase by 3.4% over the same period last year, lower than the previous value of 3.5%. The so-called core price, which excludes volatile food and energy projects, rose 3.6% year over year, the lowest increase since April 2021.
After the data was released, the US dollar index fell 0.5%, the 2-year US bond yield fell 9 basis points, and NASDAQ futures rose 0.6%.
Continued US inflation has been a major problem plaguing investors in recent months. At the beginning of 2024, traders were betting on cutting interest rates up to six times, but when the CPI continued to be higher than expected, they had to quickly reduce their bets. This made the stock market uneasy last month and pushed bond yields to their highest level since November last year.
Many investors say the April jobs report allayed some of their concerns, as a cooling labor market should eventually cause prices to rise more slowly. Now they just need actual inflation data to support this view. Today's CPI data shows that the US economy is indeed showing signs of slowing down.
Federal Reserve Chairman Powell confirmed on Tuesday that the rate of decline in the inflation rate is slower than expected and will keep the Federal Reserve unchanged for a long time.
Speaking at the Foreign Bankers' Association's annual conference in Amsterdam, the central bank governor pointed out that the rapid deflation that occurred in 2023 has drastically slowed this year and triggered people to rethink policy trends.
“We don't expect this to be a smooth path. But these inflation figures are higher than I think anyone would have expected.” “It tells us that we need to be patient and let restrictive policies work.”
Although he expects inflation to fall throughout this year, he notes that this has not happened so far. “I do think that maintaining the policy at current interest rates will take longer than expected,” he said.
However, Powell also reiterated that he does not expect the Federal Reserve to raise interest rates in the short term. The Federal Reserve has maintained the key overnight lending rate in the target range of 5.25% to 5.5%. “Based on the data we have, I don't think our next move is likely to raise interest rates,” he said. “I think it is more likely that we will keep the policy interest rate at the current level.”
Editor/Jeffrey