Stocks sink as hot inflation torpedoes rate cut hopes

Economists weighed in after US consumer prices came in higher than expected in March. The general consensus? Don't expect rate cuts anytime soon.

“Today's critical CPI print may have sealed the fate for the June FOMC meeting, now highly unlikely,” said Chief Global Strategist Principal Asset Management, Seema Shah, reacting to the print. “This marks the third consecutive strong reading and the stalled inflation story can no longer be called a blip.

“Indeed, even if inflation cools to a more comfortable reading next month, there is now enough caution within the Fed that July cuts could be extended — at which point, the US election will start to creep in. Fed decision-making,” Shaw added.

Investors now expect two 25-basis-point cuts this year, up from six expected earlier this year, according to Bloomberg data.

Ryan Sweet, chief US economist at Oxford Economics, said the tepid data could push policymakers further “into the two-rate-cut camp”.

“The Fed is biased toward cutting interest rates this year, but the strength of the labor market and recent gains in inflation give the Fed room to be patient,” Sweet said. “If the Fed doesn't cut interest rates in June, the window could close until September as there is little data released between the June and July meetings that could change the Fed's calculation.”

“The chances of the Fed cutting rates below 75 basis points this year are increasing,” he predicted.

But Greg Dago, chief economist at EY, cautioned investors to be patient: “I think we have to be very careful with this idea that it's a play-by-play process.”

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In an interview with Yahoo Finance, he noted, “These kinds of metrics still point to inflationary pressures. It's still moving in the right direction, and it will take time.”

Following the release of the data, markets are pricing in an 80% chance the Federal Reserve will keep rates steady at its June meeting. According to data from the CME FedWatch tool. It is about 40% more likely than the previous day.

More than half of investors expect the first cuts to come in September by the central bank's July meeting.

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