The new rebound in inflation in the United States in March could definitively bury the prospect of a first rate cut by the Federal Reserve (Fed) at its meeting scheduled for mid-June, a prospect long hoped for by the markets but which now seems to have been postponed.
A hard blow for the outgoing American president, Democrat Joe Biden, in the race for his re-election next November against his predecessor and Republican competitor, Donald Trump.
The rise in consumer prices continued to accelerate last month, to 3.5% over one year compared to 3.2% in February, according to the CPI index published Wednesday by the Labor Department, disappointing a once again analysts who were hoping for a less marked increase.
The increase in consumer prices, on the other hand, remained unchanged over one month, at 0.4%, like the previous month, while the consensus anticipated a slight deceleration, to 0.3% according to MarketWatch.
Core inflation, that is to say excluding energy and food and therefore considered less volatile, remained unchanged over one year, at 3.8%, while analysts hoped to see it continue to slow down. progressive, as well as over one month, at 0.4% compared to February, although it is also expected to slow down slightly.
The markets reacted negatively to the opening of Wall Street, the three indices falling in the first exchanges, between -0.94% (Dow Jones) and -1.22% (Nasdaq).
“Inflation has fallen from its peak [de juin 2022], but much remains to be done to lower the cost for families,” Mr. Biden conceded in a press release. “I call on businesses, including supermarkets, to use their record profits to lower prices,” he insisted.
“INFLATION is BACK — and RAINING!” The Fed will never be able to lower rates credibly, because they want to protect the worst president in the history of the United States,” Mr. Trump reacted on his Truth account.
“We can say goodbye to the possibility of a rate cut in June. Lack of progress toward the 2% target is now a trend,” Greg McBride, chief financial analyst for Bankrate, said in a note.
“There is no improvement, we are going in the wrong direction, and the main problem areas persist,” he added.
Drop after the elections?
Inflation remains largely driven, as since the start of the year, by the prices of gasoline, housing and transport, while conversely, food prices whose evolution is particularly noticeable for consumers, remain almost unchanged for the second consecutive month.
“The latest data supports the hypothesis of a patient approach in terms of monetary policy [de la part de la Fed] and on the absence of need for an imminent rate cut,” said Rubeela Farooqi, chief economist for HFE.
A sign of the markets’ awareness that the first cut is now delayed, nearly 77% of analysts now anticipate rates remaining at their current level at the mid-June meeting, while a majority saw this as the eve of the date of the first drop.
Now, this first drop is only anticipated by a majority of analysts during the meeting scheduled for mid-September, just over a month and a half before the presidential elections.
However, the evolution of prices in the United States is a particularly sensitive subject in this election year, while the outgoing president initially tried to focus his campaign on the success of his economic policy.
But the voters’ perception turned out to be very different from the macroeconomic data, in particular precisely because of the much more marked increase in prices observed for more than two years now.
The CPI index is the one on which American pensions are indexed. But the Federal Reserve (Fed) favors another measure, the PCE index, whose data for March will be published on April 26.
The central bank still plans to start reducing its rates this year but its officials have largely procrastinated in recent weeks, saying they prefer to wait several months to be certain that inflation is not likely to rebound.
At the beginning of April, a Fed official even explained that he expected only one rate cut this year, probably in the last quarter, while the last two meetings of the institution are expected after the presidential elections, the November 5.