By Ann Saphir
(Reuters) -Prospects for a first Federal Reserve interest-rate cut before the end of summer took a body blow on Wednesday with another U.S. inflation report that cast into stark relief the stickiness of price pressures across the U.S. economy.
After months of centering on June for the start of Fed policy easing, traders’ bets are now squarely on the Fed’s mid-September meeting for an initial rate reduction, after a third straight stronger-than-expected reading on consumer inflation sent financial markets into a fast retreat.
And the chance that the Fed won’t cut rates at all this year leapt from a barely measurable sub-1% a week ago to about 10% after Wednesday’s inflation surprise. While that remains an outside view for now, it is increasingly discussed as a possibility among economists and some Fed officials themselves.
“Given that the U.S. economy has been so robust and so strong and so resilient, I can’t take off the possibility that rate cuts may even have to move further out,” Atlanta Fed President Raphael Bostic said in an interview with Yahoo Finance on Tuesday. Bostic had previously said he expected a single rate cut this year, coming in the fourth quarter.
Wednesday’s report from the U.S. Department of Labor showed the consumer price index rose 3.5% year-on-year in March, an acceleration from the 3.2% rise in February. Core consumer price inflation, which strips out food and gas prices and is one measure economists use to gauge the stickiness of prices, rose 3.8% year on year, the same pace as in February.
“This print isn’t going to generate the additional confidence that officials were looking for,” said Inflation Insights’ Omair Sharif.
Fed officials including the influential Fed Governor Christopher Waller have said they needed more data to assess if stronger-than-expected inflation readings in January and February were only bumps in the road toward the Fed’s 2% inflation goal.
Traders are now betting the Fed will deliver a first quarter-point interest rate cut at its September 17-18 meeting, bringing the policy rate target to a 5%-5.25% range, and they see just one more rate cut by the end of the year.
““The lack of moderation in inflation will undermine Fed officials’ confidence that inflation is on a sustainable course back to 2% and likely delays rate cuts to September at the earliest and could push off rate reductions to next year,” wrote Nationwide Chief Economist Kathy Bostjancic after the CPI report.
