Expectations for Interest Rate Cut Rise in USA
The focus of the financial markets this week has been on the latest inflation data announced in the United States, amidst ongoing uncertainty about the timing of potential interest rate cuts by the US Federal Reserve (Fed).
On Tuesday, it was reported that the Producer Price Index (PPI) in the US rose by 0.5 percent month-on-month in April, exceeding expectations. The annual increase in producer prices reached 2.2 percent in April, the highest level since April 2023. While headline data for April was higher than anticipated, analysts noted that March data was revised downwards.
Fed Chairman Jerome Powell described the PPI data for April as “mixed” and emphasized the need for patience in allowing the current restrictive monetary policy to take effect in reducing inflation. Powell highlighted that it may take longer than expected for inflation to decrease and indicated that the next move by the Fed is more likely to maintain the policy rate at its current level rather than increasing interest rates.
Following the announcement of the Consumer Price Index (CPI) yesterday, which showed a 0.3 percent increase month-on-month in April and a 3.4 percent rise year-on-year, the expectation for interest rate cuts by the Fed in September has grown stronger. Core CPI, which excludes volatile energy and food prices, also increased in line with expectations in April.
Ryan Sweet, chief US economist at Oxford Economics, stated that while CPI rose less than expected in April, the Fed would likely wait for further positive inflation data before signaling confidence in sustainable inflation decline. Market expectations have priced in two interest rate cuts of 25 basis points this year.
Philip Marey, Senior US Strategist at Rabobank, noted that the CPI data was encouraging, but the stickiness of core inflation could prompt the Fed to start interest rate cuts given weaknesses in the real economy.
Overall, analysts and experts are cautiously optimistic about the inflation outlook in the US, with expectations that inflation will gradually return to the Fed’s target in the coming months. While current data may not be sufficient to prompt immediate interest rate cuts, further improvements could lead to a shift in Fed policy later this year.
